The CEO to CEO podcast is hosted by Kevin Campbell, CEO of Syniti.
On this week's podcast, we sit down with Joe Tucci, former Chairman of the Board of Directors, President, and Chief Executive Officer of EMC Corporation, now Dell EMC. As Chairman, President, and CEO of EMC, Joe oversaw one of the largest mergers and acquisitions in the history of the technology industry. Today, Joe is currently Chairman and Co-founder of Bridge Growth Partners.
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Kevin Campbell (01:26):
Welcome to today's CEO TO CEO podcast, where we're going to explore M&A as a topic. We're pleased today to have Joe Tucci of ex-EMC and Wang and somebody who's done over billions of M&A transactions joining us. Joe, welcome to the CEO TO CEO podcast.
Joe Tucci (01:49):
Thanks, Kevin. It's my pleasure to be here.
Kevin Campbell (01:51):
Joe, over your career, you did literally billions in deals in M&A. What's your philosophy of what you're looking to achieve with M&A? I know situations are slightly different, but what in general how do you think about M&A?
Joe Tucci (02:12):
Well, I think of M&A in terms of growth. In this industry that you and I both love, the information technology industry, either you grow or you die. Even if you're stagnant, you're just going to have a slow death. It's grow or die. It's an unforgiving business. It's a great business, but unforgiving business.
I always believe that you need dual innovation to grow, right? Innovation is a key to growth and I always like a dual innovation strategy, which is what we called it an EMC. Of course, strategy number one and the most important one, is that you have your own plans, your own organic technologies and services, and people, and go to market, and you want that to grow. I think the best companies, and I mean the best companies, the enduring companies, have figured out how to keep that going, but also do an inorganic strategy, which is M&A to help pop that growth.
Kevin Campbell (03:04):
That's terrific. Obviously it makes a little bit of a difference of what your strategy is, but in general, when you were sorting through, I'm sure you've sorted through hundreds of targets over the years, what were you looking for in an M&A? What was the priority that you had when you were looking through a company?
Joe Tucci (03:28):
Well, as you said, Kevin, you need to have your core strategy. There's no substitute for that. That's to be a growth core strategy, right? Of course, to do that, you've got to build your team and your philosophies, your partners, your ecosystem, et cetera. Being all that said, I think one of the best pieces of work that I've read on this was done by Bain not Bain Capital, Bain Consulting. They did a thing about, you can grow in your core and then they had rings of adjacencies, right? There's one ring out, two rings out, three rings out, four rings out. Obviously the further rings you go, the more complex, more hard it's going to be. The most successful acquisitions are the ones you do in your core. Okay?
I mean, it says a lot more than that, but I tried to simplify it for this podcast. I always followed that strategy beautifully. Not beautifully, but thoroughly. I'm not saying I did the best job at it, but I really believed in that. Again, you've got to have this growth strategy for your organic, for your core business, and then you got to know what I'm buying and where it fits in and how many rings adjacent. Then you've got to realize the further you go out from your core, the less chance it's going to be at being successful.
Kevin Campbell (04:40):
When you acquired, for example, VMware, virtualization wasn't popular, right? How did that come about in your strategy? Do you remember back as to what you were thinking about said, "Hey, this is cool."
Joe Tucci (04:56):
Sure. Exactly. EMC is a storage company. We changed it, but it was a storage company. Basically when you think about storage, we were not a storage company. We were an external storage array company. In other words, you took all the data out of your servers and you put it in a central array that was accessed by all your servers. You with me?
Kevin Campbell (05:16):
Joe Tucci (05:18):
That's where we were. The core VMware took data out. It's a different strategy today, but back then they took data out of each of the servers and they centralized it, which opened up billions and billions of dollars of market. If VM were successful, it would open up billions and billions of market to EMC, which heretofore was not in our real house, right? We couldn't get at that storage that was stuck in the server. We had to take it out of the server. VMware did that very aptly.
The second thing we saw, "Hey this is a hell of a market," because servers they were single core back then. Even in single core, the average utilization was less than 10%. A number of applications that ran on a server was about one, 1.1. Therefore, there was not to stop that service for all and consolidate with bigger servers was going to be a huge market with a huge payback. It actually got a great payback, just on a storage consolidation that we could get at with our products in the end. Then secondly, we had the core market of virtualizing the server itself, which they both work just [inaudible 00:06:25]. That's what I saw at EMC.
People ask, "Did you see the cloud? Did you see this? Did you see that?" The answer's no. I saw those two things and those two things were made it very interesting to us. But again at VM, or the way we did there, we started a second core just to go back to that main core. Then we try to get synergies between the cores.
Kevin Campbell (06:44):
When you were looking at that you can waste a lot of money looking at a lot of targets, even ones that were on target. Did you have some rules that you've developed or your team developed that said, "Hey, if we talk to the management team and they say X, Y, or Z, well then forget it. It's not a good target?"
Joe Tucci (07:09):
We had a simple approach and people find this hard to believe, but I believe it thoroughly was we started with the people. If we wanted to acquire a company or merge with a company, some people like to the term merge versus acquire. It doesn't really matter. But if we were going to make that company part of our company and our company relying on that company, got to make sure that we liked the people because there's nothing in IT which says, "Give me your technology and just I don't want any of the people."
You got to understand, "What am I after it?" Am I after technology? Am I after skilled people and they answer a customer base? Am I after a partner ecosystem? You could acquire a company for any or all of those things, right? Basically it all starts in my book are the people.
Do I like these people? We work hard. We work long. It's nice to work with somebody you like, so if these weren't our kind of people and I use that word generally, that would throw up a huge red flag.
Secondly, it was important that they saw life the same way we did or similar, like when we think we're moving North. They said, "No, it's not North. It's North Northwest." That's fine. That's even better because they maybe overall right, but if they said, "Nah, it's going South." You want to go North. I mean, it's too far to bridge. I very strongly did we look at those two items, right? Sounds kind of ABC-ish. Did we like the people and did we like how they see the market and the potential in the market? If those two were true, we would go onto the other things, right? The due diligence, the dollars, and of course saved for last, but it's important. Work out the social issues. If you want the people, the social issues are incredibly important. Where do I work? How do I work? What's my benefits? How long am I supposed to work? Who am I going to report to? That's what I'm referring [crosstalk 00:08:59] to social issues, right? But they're big in people's minds.
We always follow that timeframe. We never said, "We're going to jump that." There's always ABCD. Of course do the due diligence, you got to do the homework. You got to send it teams to understand their people and their skills. Send in teams to understand the partners, their customers, their financials, the books, their strategies, et cetera. You got to just do the work.
The biggest advice I always give to my people is, "Don't fall in love at all costs. Don't fall in love." Stay with our game plan because you can fall in love with a target.
Kevin Campbell (09:38):
Joe Tucci (09:38):
Then all of a sudden you're making excuses, "That's nothing, that's nothing, that's nothing." Then you got big problems.
The last thing I recommend is you have a business owner. I tried hard not to make that business owner me as CEO. Where's this product on the live in his company, right? If it's a new core, that's fine. Then I get directly involved, but it's got to be part of the same core. You got to get your business leaders to buy in and sponsor this deal. Or else it's lonely at the top and it'll get lonelier at the top.
Kevin Campbell (10:05):
Good advice. When you then decide you're going to put these together, of course, we always have either the board or the board and the [inaudible 00:10:14] to discuss. All mergers have synergies, whether they're revenue synergies, or cost synergies, or in a lot of cases, both. The studies always say that half of the deals that are out there fail to achieve their synergies. That's usually from a consultant who's trying to sell you whatever their consulting is to help you with the synergies, but from your perspective, and I know you guys leveraged outsiders too, but what was your focus on how to get the synergies? What was your key blocking and tackling to make sure that you got the synergies that you were talking about?
Joe Tucci (10:56):
Well, first of all, when we talked synergies, we talked both positive and negative synergies. Then revenue and cost synergies, right? It's like a four-dimensional target. We think together, our revenues should grow faster. What does that look like? We think we can take out this amount of duplicates. Cost. What does that look like? It's always approached at from that angle.
The biggest thing you got to know is sometimes you take a company and you dump it into core, and it's like, for instance, you have a product and you can always code what you want to put in that product, right? Like I came from a product background. We had a big service business, too, but more product. With services, finds a services and services those strategy is very similar.
You can always do it yourself. The question is, "Can I buy a lot of time to market? Can I buy a customer base? Can I buy..." Just to go through same thing. "Can I buy people who understand this market better than our people?" That's going to be the key to success. Board is going to be your biggest asset and your biggest pain in the butt because they always want to say, "Okay, we just paid XX for this acquisition. Keep reporting on it." I used to tell them, "Look. If I keep it separate, like VMware, obviously we can, and we will do that." But sometimes, or even like an RSA for security, we can do that very easily. But when I take something and I want the ingredients and I'm going to mix it in the EMC soup, right? I'm getting new reps at EMC Soup out there, right? How do I know if it's that customer that's increasing my revenue or the new version of the software or whatever?
I used to tell the Board is, "What you got to do then I commit to say, have EMC grow X percent faster. Just measure me on that. Don't ask me about that acquisition anymore." Or that acquisition doesn't exist. It's in a million pieces. All the finance's in finance. All the marketing's in marketing, et cetera, right? It's not a standalone.
You got to really define and the investors are going to be the same way. You've got to define to investors what's, as I call it, "In the soup." Now you're going to report, "Hey, my soup's growing faster on what is separate-able, right?" You're going to start a new core or several rings of faraway of adjacency and that you can report on, right? It's a waste of time to report on everything, which a lot of fellow board members don't get.
Kevin Campbell (13:16):
Great advice. I think, that is the challenges that you want to get integrated as quickly as you can and get going [inaudible 00:13:25] the market as fast as you can.
Joe Tucci (13:28):
I've said it several times, but usually when it boils down is you could do anything, right, given time and money, but it's what about that time to market?
Kevin Campbell (13:39):
Joe Tucci (13:40):
I mean, if you're going to quote like for instance, one of the best acquisitions EMC did was they had a general to get their mid-tier storage business because EMC was the King of the high-end storage business and I work really well. Now that you could get people from that high-end storage business to build a whole new product, but you had a very successful high growth product buried in this old company called Data General. By buying that and splitting that out and making a mid-tier line faster, I think netted us billions of dollars in revenue and profit. That's the key.
Kevin Campbell (13:40):
That's great stuff.
Joe Tucci (14:16):
It's always going to be about time to market.
Kevin Campbell (14:17):
When you look back on it, any other acquisitions that you are particularly fond of or you thought were ahead of their time? Obviously VMware was ahead of its time. You just talked about the Data General. Anything else that pops to your mind?
Joe Tucci (14:31):
Yeah, I think Data Domain, which really made a solid in a multi-billion dollar adjacency involved data protection, some call it backup recovery, some call it business continuity, but that company really accelerated that business. It was growing nicely before we bought it. After we bought it, it just was on steroids.
I would say VMware for sure. Data Domain, for sure. Data General, for sure. I didn't do Data General. My first job when I came in as Chief Operating Officer was to help integrate Data General, but just looking back at EMC in total, I think those were the three biggest. I know there's a bunch of others and some didn't work quite frankly.
Kevin Campbell (15:13):
When you look at those acquisitions, right, and look back on your career, what about the role of data in, in M&A? Both the other customer's data and your data and how to put stuff together. Any reflections on how data's important in this process?
Joe Tucci (15:35):
The oldest axiom I think in information technologies, from data one begets information. From information one begets knowledge. Of course, when you're doing a acquisition, you want to make sure you know as much as you can, right? Sometimes you're doing it, you're in a competitive bid and the target is put forth the data room. Sometimes you're thinking out your own data and inside of that, and I do it, I really believe it's on, it's broad. It's data about the people. Data about the DNA. Data about the softer side, as well as the hard side. I think they're both important, but data's all important.
Then of course, when you're successful in the acquisition, you want to integrate the IT for sure. Of course, those long pole in the tent always ends up being that how you get your data set up right so that it's useful in both companies, the old company, the one you acquired them yourself.
Kevin Campbell (16:35):
When it comes to IT integration and data integration, was your philosophy, do it fast or do it slow?
Joe Tucci (16:43):
My preach and belief is you want to be as accurate as you can, but I always believed you got to sacrifice some precision for speed because if you don't go quickly, it's this fast moving market that you, again, the IT market that you and I love Kevin, is just. Has done nothing but accelerate through my 50 year career in IT right? Nothing but accelerate.
If you go too slow. You don't want to make mistakes and you want to be like the good carpenter, "Measure twice cut once." But that being said, you got to be willing at the top to sacrifice some precision for speed because again, the biggest thing you're trying to get is time to market for that product, for that service, for those go to market people, for whatever it is that strategically interested you in this company.
Kevin Campbell (17:33):
Joe, you were acquired at the end of your run of CEO at EMC by now in what's viewed as the largest transaction in the IT industry. When you were the CEO and it was reverse instead of acquire and you were being acquired, what were you looking for in somebody to acquire your company?
Joe Tucci (18:02):
You got three major constituencies that you're beholden to. Number one is your people. I start with that. Number one. With your people, you want to be able to look yourself in the mirror and say, "I'm giving them more opportunity."
The second audience is your customers. The key word there is care. Care and feeding. You want to make sure they'll be properly cared for because they took a bet on you. They bought your products, they bought your services. You become a strategic important part of their [inaudible 00:18:34] business and maybe the digital transformation. So is the care for those customers is going to be there?
Thirdly, and there's no order because it's A1, A2, A3, is your shareholders. Are they going to get a good and a fair return? Are they for it? Now they get to vote on it ultimately, so that makes it a little bit different than the other two, but it's still... You always worry about those three constituencies.
Again, it's opportunity, care, and dollars so to speak, return. I think that's a great win. Now, all of this also, you want to care about your partners as if they were your people. You wouldn't be where you are if you didn't have some really good dedicated partners in your ecosystem and you want them to care about you when you've got to care about them.
Then of course your last audiences, the communities and where you work and the adult transaction kind of addressed all of those. I mean, I was convinced that there'd be enhanced growth and with growth, there'd come more opportunities. The shareholders got to vote on it. It was overwhelmingly voted for positively, so I think they felt they were getting a good return and customers, their customer satisfaction is very good today. This is three-and-a-half-years into the deal. The customers are still with us. They still believe in the company.
Then a fourth one. The board got a benefit. They're looking for a successor because unfortunately I got older and my time to turn it over. Michael Dell's done a great stewardship. He's a great CEO and a good leader, great leader.
Kevin Campbell (20:06):
It makes sense. I think, sometimes the most straightforward and simple answers are the ones for people not trying to be overcomplicated. The simple answers are what works the best. For a lot of transactions that you know of and I know of and that we've talked about, then it failed. This one is viewed as highly successful. Between you and Michael and the corresponding management teams, you certainly got more right than you got wrong.
If somebody was looking to be acquired, what would you tell that CEO? Would you tell him to just think those three or four angles or do you have any other advice for a CEO that's looking to be acquired?
Joe Tucci (20:54):
I think the best companies aren't looking to be acquired. They think they have a path then they just... What we have to do is present them, you and I and others I'm on your board and for those that don't know, have to sell them on the opportunity together is much greater than the opportunity apart. The CEO needs to be unselfish. It's not about him. It's not not about you, Kevin. Again, back to those target markets, is it a better opportunity for our customers? Is it more care for our customers and our people? Is it more care for our customers? Is this going to benefit the shareholders? I mean, if you get a yes, yes, and yes, then you got to be an awful selfish person, guy or woman, not to want to proceed.
Kevin Campbell (21:39):
Well, I think you follow the same faith that you and I have talked about before. That I've been trying to do, which is, "Build a great company and everything else will take care of itself."
Joe Tucci (21:50):
One of my biggest beliefs, Kevin is you should not do an acquisition to pitch yourself. That's the primary road to failure. Failure fast if you do that. You got to work. You got to put in the work and take your core business state that you're running and get it fixed up and leaning in the right direction and it's starting to grow.
Then you can layer in these acquisitions to hop that growth and make them grow faster. That's something I would tell a CEO also. If your business is fundamentally broken, don't expect an acquisition to fix it. You're better off selling your business to somebody else, let them do it. But if you can get your business running in the right direction, M&A and dual innovation growth strategy is the innovation begets growth if you do it right. It's going to serve you well. It was kind of trite, but that's what I would say to any CEO because I believe it.
Kevin Campbell (22:42):
Joe, a lot of good advice this afternoon that I think people are going to really enjoy listening to. Is there anything I didn't ask you about M&A that you'd like to impart to us as we wrap up?
Joe Tucci (22:56):
Eventually it comes down to the hard work of integration, Kevin. That comes in planning and people buying into the vision. Again, to CEOs, I'd say, "It can't be your vision. It's got to be our vision, our vision of being a company as partners, as customers."
When that happens, great things will happen. Then everybody will double down and get that integration work done fast because there's always some. Again, that integration should have synergies and the synergies should be focused on as much as cost. Everybody focuses on cost. There are very few companies that missed their cost synergies, but a lot of companies missed their revenue synergies.
There's also dis-synergies too. You got to make sure you put them in the pot too because it's impossible to do some of these things, adding a little bit of speed for precision, but not breaking something or bending something. You got to allow for that. What are your revenue synergies? What are your cost synergies? What is your dis-synergies? Then that's how you formulate your plan. How are you going to measure it? Do you want to measure the entire thing, which you do in a tight integration. If you're going to an adjacency, you could probably please your board and your shareholders by giving them more information on how that particular unit is doing, but make up your mind. Have your team totally coalesced behind it. Pick the right kind of people that you want to be part of your team because you worked hard, I know Kevin, worked very hard on the DNA aspects of the company. You should be very proud. Syniti is great, really well-positioned for success.
Kevin Campbell (24:26):
Thanks, Joe. Thanks for spending time with us today. For the audience thanks for joining us and look forward to the next CEO TO CEO podcast.
Joe Tucci (24:36):
Thank you, Kevin, for having me.
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