Managing M&A Mayhem

These are busy times on the M&A merry-go-round. Earlier this week, for example, Betrusted Holdings and TruSecure Corp. joined forces to form CyberTrust, the worlds largest private information company (see Betrusted, TruSecure Form CyberTrust). At the same time, Oracle Corp.’s (Nasdaq: ORCL) relentless pursuit of PeopleSoft Inc. (Nasdaq: PSFT) continues apace (see Oracle Prevails in Antitrust Lawsuit).

But what about the impact on end users?

Well, analyst firm Gartner Inc. estimates that by 2007, the number of suppliers in the software market will be slashed by 50 percent thanks to a combination of mergers, acquisitions, and firms either moving to a different market or simply going out of business.

Although Gartner does not have a specific figure for how many data center vendors will disappear as part of this trend, Alan Mac Neela, a Gartner vice president, warns that there will be “significant consolidation” in the market for data center products.

Certainly, barely a month seems to go by without one of the major players such as Cisco Systems Inc. (Nasdaq: CSCO) or IBM Corp. (NYSE: IBM) snapping up a smaller, specialist IT vendor (see Cisco Nabs NetSolve, Cisco Acts on Actona, and IBM Vouches for Venetica).”There's a high degree of consolidation taking place because there are too many suppliers,” says Mac Neela, citing the example of data center specialist Synstar, which was snapped up by Hewlett-Packard Co. (NYSE: HPQ) last month (see HP Swoops on Synstar).

The end result of all this consolidation? A headache for data center managers when making future plans, according to Mac Neela. “Users have to be very, very careful about the selection process they use."

Gordon Haff, senior analyst at Illuminata Inc. agrees with this sentiment. “The overall trend is for consolidation -- what it means for end-users is that picking the right partners is more important,” he says.

At the moment, IT managers typically make their purchasing decisions based on two factors: price and product performance. But Mac Neela believes that longer-term "soft factors" are becoming increasingly important as the vendor community changes shape.

”You would be surprised by the number of companies that I come across that don’t consider the long-term factors,” he observes. “They engage with the vendor on price and then find that they can’t work with them longer-term.”To avoid this, users should look into a potential supplier’s cash position before entering a deal -- and check out the vendor’s management team and their corporate vision, according to Mac Neela. Crucially, users should also take their own company’s long-term plans into consideration. Even some of the largest firms get caught out on this last one. Last week, for example J.P. Morgan Chase & Co. ended its $5 billion outsourcing agreement with IBM following the financial giant’s merger with Bank One (see JP Morgan Ends IBM Outsourcing Deal and Will More Banks Bet on Insourcing?).

Haff also believes that, in the current climate, users should try and keep at least some parts of their data center on a single vendor’s kit. This is particularly important, he feels, if they are planning to deploy complex technologies like virtualization.

”As we move towards a totally virtualized data center, the early stages will be small homogenous islands [of technology)],” says Haff. “Even if the end vision is heterogenous, a lot of the way-points on the path will be relatively homogenous.”

— James Rogers, Site Editor, Next-Gen Data Center Forum