Why IT pros should care about the tech M&A frenzy

As large technology vendors embark on buying sprees and bidding wars, IT professionals are in the crossfire. Data center managers need to keep an eye on mergers and acquisitions and have a CYA strategy.

Intel's buying McAfee. Dell, no HP, no Dell -- well someone is buying 3Par. EMC bought GreenPlum. Oracle has already bought pretty much any company that wasn't nailed down.

The latest flurry of deals this week including Citrix Systems' planned buyout of VMLogix and VMware's acquisition of Integrien and TriCipher, sparked more M&A speculation. HP -- or somebody else -- will buy Symantec. SAP has its eye on Red Hat. Or not. In any case, we're off to the races.

Given the current economic climate, where companies can't earn much -- if anything -- on their cash holdings, financial experts including Jeff Matthews, general partner with RAM Partners, a Greenwich, Conn.-based investment counselor , said to expect more -- perhaps many more -- tech deals.

"Look, Intel was earning 1/2% on its cash. Even if they pay 30X earnings for McAfee, they're now earning 3% on that money (1/30). So, first, it's better than having the cash, and second, they now own a real business that maybe they can do stuff with, and it's essentially free!"

Tech M&A impact on IT pros

So what does all this activity mean for IT professionals? Most high-level IT folks should at least keep an eye on possible mergers-and-acquisitions talk when it involves a primary vendor. "Most don't care about the 'lifestyles of the rich and famous' stuff like Mark Hurd's exit other than as conversation fodder. But if you're a 3Par customer, you'd better be paying attention and wondering which buyer is worse -- Dell or HP?" said Bruce Campbell, vice president for Clare Computer Solutions, a San Ramon, Calif.-based IT solution provider.

"Every time a tech company gets bought, letters go out to customers saying 'nothing will change' and a few months later everything does," Campbell added.

The reason many IT shops go with a smaller vendor is the same reason big tech companies want to buy that vendor: Smaller, nimbler companies often blaze the trail in new technology. And often they're willing to provide early adopters more personalized care and feeding than behemoths like HP, IBM or Oracle.

IT pros must CYA

One reason IT pros should watch any M&A activity around their primary technology vendors is that any buyout could mean drastically different support and maintenance costs for them down the line. And that's above and beyond changes to product list prices.

The minute they hear about a potential buyout, they should start evaluating possible migration strategies for worst-case scenarios, said Mick Gallagher, CEO of LST, an IT specialist based in San Diego.

For example, some Sun customers privately complain that support costs on their Sun gear have skyrocketed since Oracle completed its buyout of Sun Microsystems in January. "If you bought $100,000 worth of Sun hardware, you could get a Sun partner to provide service for maybe 10% to 14% of that cost. Then, Oracle buys Sun, takes service direct and starts charging 22% or whatever it is for its own support," said one Sun shop. In some cases the support costs significantly more.

Ideally, these Sun shops should have started looking at other hardware options when news broke last year that Oracle was interested in buying Sun. Depending on where they were in January on their own hardware refresh cycles, their budgets probably took a pretty big ding when Oracle instituted its support policies this year, he said.

It's also important to realize that there may be big-picture, strategic motivations for these big buyouts but there could also be much more mundane, tactical considerations that drive competitive IT vendors to launch a spending spree. And those tactical issues are also important to IT pros. The last thing they want to see is a giant company buying a favorite technology just to keep it out of the hands of a competitor and potentially kill it off.

IT pros react to recent M&A activity

When Pete Sclafani, CIO of 6Connect Inc., initially heard HP was in the hunt for 3Par, he scratched his head. "My first reaction was 'what happened to LeftHand? This was the storage platform that HP was aligning itself with --mmust be awkward at dinnertime." HP bought LeftHand networks for its iSCSI-based storage two years ago. That purchase was seen as a direct response to Dell's earlier buyout of EqualLogic.

HP also has other storage issues. Observers said the company's storage line is diverse or fractured depending on their point of view. Aside from its relatively new LeftHand line, HP also resells HDS storage in an alliance that some say has not paid big enough dividends. The bulk of HP's Storageworks line came via its acquisition of Compaq.

HP and Dell are hyper-paranoid about each other -- trading market share leads in servers and PCs and trying to capitalize on each other's recent public relations snafus.

The CTO of a large Midwestern financial services company said HP's attempt to wrest 3Par could be a smart move. "First, HP's storage move right now is largely HDS, and they have struggled to get traction at the enterprise level."

Oh, and HP "doesn't want 3Par to go to Dell," he added

Eric Hanselman, the CTO for Waltham, Mass.-based Leostream, a vendor-neutral connection broker provider, said the Intel-MacAfee join-up is driven by server virtualization and VDI because vendors are concerned about what those technologies do to the end point.

"The model for desktop protection changes with VDI, because the desktops are moved into the virtualization layer in the data center. Because of that, some people starting saying they don't need AV anymore. It's making a lot of these players look at where their products should go. … Both Intel and MacAfee are trying to make their platforms stickier, and security is a great way to do that."

Others said Intel is anxious to move beyond its traditional stronghold in PCs altogether and better penetrate the world of Internet-connected but non-PC devices -- household appliances, sensors, etc. "This is all about the world beyond the PC," said Heather Clancy, an independent consultant and a contributor to SearchITChannel.com, a sister publication of SearchDataCenter.com.

Another force coming into play is the ever-looming cloud computing arena, which makes name brands less important, Hanselman said. Many customers will come to see the "cloud" as a black box and not care what hardware or software is running it.

"Intel inside in the cloud gets cloudy; people don't care about whether Intel is inside or not. AMD is well aware of this and pushing for hardware vendors to use their chips in the cloud. So, security could be a way for Intel to continue to build revenue."

More on the impact of high-tech mergers and acquisitions on IT pros.

News writer Bridget Botelho contributed to this report.

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on twitter.

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