The storage space received a jolt today when Dell announced it would pay a whopping $1.15 billion in cash to acquire 3PAR, whose data-center storage technology competes against offerings from EMC, IBM, and HP.
There are several interesting aspects to this deal, and I’ll touch on a few of them briefly.
First off, Dell is paying dearly, quite literally, for 3PAR. The acquisition price represents an 87-percent premium on 3PAR’s closing stock price last Friday. That sort of acquisition premium is a blast from the past, taking us back to the days of wine and roses in Silicon Valley, when slick spivs cut wild M&A deals with blistering frequency and reckless abandon. It harkens back to a time when men such as Frank Quattrone bestrode the Valley like mythical colossi.
Party Like It’s 1999
Wait, what’s that? Frank Quattrone was on the sell-side of the Dell-3PAR deal, ensuring that his client got fair value for its technological wares? Then I suppose it’s deja vu all over again. For one day, at least, Quattrone and his merry band of investment bankers can pretend that we’ve gone back to a more salubrious time, when the next big transaction was, in more ways than one, right around the corner.
Let’s give Mr. Quattrone his due, though. If he got aboard the time-travel machine and went back to the late 90s, he got his Dell counterparts to make the journey with him. They certainly whipped out their rolls of cash like drunken brokers . . . well, never mind. Let’s not go there.
All things considered, however, I’m surprised Dell paid such a rich price for 3PAR. Dell must have thought it was a necessary measure, for whatever reason. Perhaps Dell was convinced that another company — HP, for instance — was competing for the deal. It would be good know what precipitated the preemptive strike. (Even though the deal seems rich by today’s standards, not everybody associated with 3PAR is pleased with it, much to the delight of litigious lawyers — are there any other kind? — everywhere.)
Dell and EMC Part Ways
My second observation is that the 3PAR deal, no matter what Dell says publicly, suggests that its reseller relationship with EMC is in serious trouble. It’s been a fraught relationship for a while now, and Dell must have concluded that the prognosis wasn’t good. Rather than wait for the inevitable acrimonious divorce, Dell decided to throw down the gauntlet and start the recriminations early. If you’re going to go to war you might as well fire the first salvo.
In the end, I suspect Dell felt it could not compete with Cisco for EMC’s affections. That probably was an accurate assessment. With EMC about to be kicked into touch, Dell needed an alternative for its high-end storage customers — something it could control and own — and 3PAR was an obvious choice.
Dell’s Valley Presence
Finally, as 3PAR’s Marc Farley wrote on his StorageRap blog, Dell apparently will leverage 3PAR’s location as well as its technology. The thinking is that Dell will expand both the business and the engineering teams at 3PAR’s headquarters in Fremont, California. Many, including Farley, believe it’s long past time for Dell to raise its profile in Silicon Valley.
I understand the reasoning behind Dell’s 3PAR acquisition. I see how it fills a hole in Dell’s product portfolio while also providing an integral element in Dell’s vision for data-center storage and cloud computing. That said, I’m still feeling a bit of sticker shock looking at that price tag, and I’m not even a Dell shareholder.