Documentum – Dell buys EMC – Thoughts as the smoke clears

Announced last Monday October 12^th, Dell is buying EMC for 67 billion, the biggest tech merger ever.  As we mentioned on Monday, TSG wanted to share some of detailed thoughts with customers and potential customers regarding the merger and the effect on Documentum.

Why did Dell buy EMC?

Earlier in the year, it seemed like EMC was in discussions with HP before talking with Dell.  From a variety of posts on the web and press release, the best article I thought was e-week which presented:

• Dell wants VMware, owned by EMC. Thirty-five percent of EMC’s $52.55 billion market cap (or about $18.3 billion) belongs to VMware alone.
• Dell also wants Pivotal to add to its growing Dell Software division. Pivotal is one of the most promising young software companies out there.
• EMC wants to stay intact, no matter what.
• Both companies need help right now against an onslaught of younger, imaginative, fast-moving newcomers in cloud storage, cloud computing, security and a number of other sectors. When lots of piranhas are constantly biting at a bigger but slower target, eventually they will consume it. EMC and Dell joining forces at this time would fortify themselves for a longer period against these adversaries.
• Both are veteran, been-through-the-wars companies that once owned their respective markets (EMC in storage, and Dell in PCs). Actually, EMC is still the global storage hardware leader, but with the advent of cloud infrastructure and a long list of new-gen competitors, sales have leveled off in the last two years and the big ship’s listing. Dell remains in the world’s top 3 in terms of selling desktop and laptop PCs. So both companies aren’t exactly destitute.

Nowhere above does it mention Documentum or ECD (Enterprise Content Division) that includes Documentum.

What does it mean for Documentum in the short-term?

In discussion with a variety of sources, we would anticipate that:

1. Documentum/ECD will be left alone while the deal closes. Most estimations target mid-2016 for the deal to close.
2. EMC/Dell will have layoffs to reduce costs and for “synergy”.
3. Documentum (and ECD) will be sold/spun off after the deal closes.

In the past, we have said multiple times that Documentum would not be sold off both in 2012 and 2014.  We are pretty confident this time around in that:

• Joe Tucci is not running the Dell/EMC combination and is retiring.
• EMC sold off Syncplicity earlier this year in July.
• Given the huge amount of debt Dell is getting to pursue this deal, they will want to pay it down with pieces that aren’t core and ECD is clearly one of those pieces.

In the end, it puts Documentum (and their people) in a weird limbo land while the deal is closing.  Some things to consider:

• Project Horizon – As we mentioned at EMC World, project Horizon will take considerable investment. Plan on that investment stalling or fading as Documentum awaits a buyer to determine if it is strategic or overlaps the buyer’s offering.  ECD had been hinting lately the project horizon wouldn’t replace Documentum anyway.
• Webtop/D2/xCP – As we recently pointed out, D2 seems to have some underlying scaling issues.  Will the D2 issues as well as xCP/Webtop issues be fixed?  Will products be improved?  We would probably recommend that clients, during the limbo time, just focus on what the product does today.
• Who is the buyer?  The most disconcerting item is trying to guess who the buyer will be. Key to product understanding will be which buyer is picked and why they are buying.

In order for Documentum to receive a buyer that “saves” the product, the buyer needs to be focused on continuing to evolve the product and support the engineers/consultants.  The buyer should also bring a client base that could be a new customer stream for Documentum.  In the past, we have hinted that established software firms that lack ECM and have a locked-in large client base (ex: SAP) would be best.

What about the People?

From both the limbo of the acquisition as well as the concern about focus, many at ECD/Documentum will be either let go or will look for other work.  Some items to consider:

• EMC Options were one major reason many were staying at Documentum. With those options vested (Dell is private), will employees leave to explore other alternatives?
• California – For the engineers, Pleasanton has never been a draw as it isn’t really San Francisco. Would engineers (now vested) look for alternatives?  With California’s no non-compete law, there is nothing preventing employees from considering all alternatives.
• Consulting – as we mentioned, many of Documentum’s products are really consulting offerings. Will consultants stay and become Dell Consulting?

The Cultural impact of Layoffs

Every article on the merger has mentioned that layoffs are coming.  While most focus on the bigger work force on the EMC side, Michael Dell on a media call about the merger said.

“There are certainly some cost synergies — we’re not going to tell you that there aren’t,” said Dell, who declined to get into specifics, other than to say this: “I think there are some other companies in our industries that are maybe far better at reducing headcount then we are.”

More from Forbes

“A combination of EMC and Dell could cost 35,560 people their jobs — 20% of their combined employee base of about 177,800 people. EMC had 68,000 employees at the beginning of 2015 and laid off 1,500 in the first quarter of 2015, according to EMC. Dell had 111,300 last October according to Forbes.”

ECD will be asked to reduce costs and, for a software firm, the bulk of those costs are people.  Even before layoffs begin, fear of layoffs is incredibly de-motivating for staff.  Thoughts can include:

• “Will I be here tomorrow? Should I start looking for a job?”  Often times this is thought by the best people, the ones that can easily find another job, and they move on before the layoffs even begin.
• “Should I put my best effort into this task?” Particularly on development efforts that are months away from being complete, should I put in the extra work to finish/fix products that I might not get to finish?
• “You’re still there?” Peer groups can be brutal on those that stay.  From a culture side, it can be very difficult to be the last man standing while friends and co-workers have moved on to new jobs.

The Dell Brand – “Dude, you’re getting a Dell”

Software engineers want more than just a place to work.  Most want to be proud of where they work and what they do.  Documentum and EMC had a certain vibe as innovators of document management (Documentum) and one of the four horsemen of the internet (EMC).  Dell just doesn’t have that same vibe and the brand is associated with cheap PCs.  As a consultant/engineer, saying:

• “I work for EMC/Documentum” will often get the response of “what do you do for EMC/Documentum?”
• “I work for Dell” will get the response of “you fix PCs?”.

One of the parody videos (from Conan O’Brien) that has been circulating around the ECM environment best displays thoughts on Dell compared to a Jobs/Apple coolness:

Summary 

One of our clients approached us with a more optimistic approach – “this could be a good thing for Documentum”.  For that to hold true:

• Documentum engineering and consulting would need to survive the layoffs and the next six+ months in limbo as they await a buyer.
• The buyer would have to want to invest in Documentum’s future rather than just milk the existing revenue stream.
• The buyer would need to bring others positives (existing clients, funding, technology) to Documentum to continue to evolve the product.

For a comparison, when EMC sold Syncplicity earlier this year:

• The head of Syncplicity, Jeetu Patel, left for Box.
• The buyer was a venture capital firm, Skyview Capital, that did not bring clients or technology.

At this time, we would anticipate that the buyer of Documentum/ECD would be similar.  Let us know your thoughts below: