Michael Dell has made significant progress in raising the cash he needs to close on the long awaited acquisition of storage giant EMC

Following its $20 billion sale of investment grade secured bonds in May, it sold off $3.25 billion worth of junk bonds earlier this month to help finance the deal. 

Monday, the company raised an estimated $2.2 billion more by selling its software business, Dell Software, to Francisco Partners and Elliott Management. 

The private equity firm and hedge fund receive database provider Quest, security company SonicWall and advanced analytics provider Statistica among potential others as their part of the bargain.

Where all this activity leaves EMC’s Enterprise Content Division (ECD) and its president Rohit Ghai is unclear — but more on that later.

Relief or Regret?

The sale of the software division must come as both a relief and a regret — after all, Dell had reportedly been trying to unload Dell Software components Quest Software and SonicWALL for at least six long months. The sale price has to be a disappointment though, considering that Dell paid $2.4 billion for Quest in 2012, around $1.2 billion for SonicWALL the same year, and an unknown amount for StatSoft, now called Statistica, in 2014.

That leaves a loss of more than a billion dollars to account for and assumes that Dell did nothing to improve on these acquisitions and that there was a loss of market share. But that doesn't seem to be the case. 

Take Dell Statistica as an example. Gartner named it a Leader in its MQ for Advanced Analytics for the first time in 2016. And this is a market that is expected to grow 40 percent by 2020. (Gartner's note of caution on Statistica, by the way, was its stability within Dell during the EMC deal.) 

Dell Software's holdings deliver advanced analytics, database management, data protection, endpoint systems management, identity and access management, Microsoft platform management, network security, and performance monitoring to more than 180,000 customers.

Not into Software

Dell acquired software capabilities to grow into new markets. Now it is selling them at what can only be seen as a loss. 

Why were the acquisitions such a failure? 

Because Dell doesn’t want to be in the software business anymore, contrary to what Michael Dell said about analytics being vital to Dell's future during his Dell World keynote in 2014.

At that time he lauded big data and analytics as the next trillion dollar opportunity. Perhaps he was right, but someone else will be hawking technologies like Toad, Statistica and the rest of Dell Software’s portfolio.

Constellation Research VP and principal analyst Doug Henschen questions whether Dell Software will stay intact as a single entity.

“The (Dell) software group was built out through a string of more than 30 acquisitions. While the investment firms' announcement suggested the software group will continue operating as usual, that's not too likely," he told CMSWire. "My guess is that bits and pieces will be sold off to plug holes in the portfolios of larger software vendors. With analytics being such a priority, I have to believe that Statistica will find a new home."

Dell CFO Tom Sweet certainly was not spinning it that way. In a statement announcing the sale of Dell Software he asserted that that “Francisco Partners and Elliott Management’s deep passion for technology and proven track records in nurturing and building software businesses will enable Dell Software’s loyal base of employees to continue delivering innovation.”

Learning Opportunities

Those who have kept an eye on Elliott Management might be more likely to agree with Henschen's point of view. After all, it was Elliott that ousted Citrix’s much loved CEO, that forced the sale of EMC, and that has bought significant enough stakes in BMC, Informatica, Brocade, Riverbed, Juniper, Novell/Attachmate, Blue Coat and many others to actively influence their directions.

Though we’re saying it somewhat tongue-in-cheek, it will be interesting to see if years from now tech historians don't conclude that activist investors had as much influence on the shape of the enterprise software industry in this decade as its leading innovators.

No Future for Documentum at Dell

Though EMC and Dell have yet to publicly announce that EMC's Enterprise Content Division (ECD) is for sale (or perhaps spun-off), it's become increasingly clear that there's no room for it at Dell — and the sale of Dell Software drives the point home even further.

Dell does not want to be in the software business. But more importantly, it can't afford to stay in the software business either. 

The S-4 document Dell prepared for the SEC, with regards to the EMC acquisition, contains some interesting verbiage. It says that Denali Holding Inc (DHI), the company that owns Dell,"has an objective of reducing its indebtedness in the first 18-24 months after completion of the merger and achieving an investment grade credit rating for such indebtedness. The cash necessary to achieve that objective is expected to come from divestitures of non-core businesses of the DHI Group, including EMC, cash flows from operations of the DHI Group and cash generated by reductions in the working capital needed to operate the DHI Group."

This suggests that Dell will might break parts of EMC apart soon after the sale closes. There's little doubt that EMC ECD would be — if it doesn't sell by then — one of the first items to wind up on the block.

And unlike EMC CEO Joe Tucci who has had great patience while trying to unload Documentum, Michael Dell seems to cut bait relatively quickly. 

One Guess Who's Next for the Chopping Block

So with EMC shareholders voting on the Dell deal on July 19, change is imminent for EMC ECD. Whether it (Documentum + InfoArchive + EMC LEAP) will sell for more than the $1.7 billion EMC paid for Documentum alone in 2003 is anyone’s guess. Digital Clarity Group analyst Alan Pelz-Sharpe suspects it could be close. (Which may explain why Tucci has been so hesitant to sell — it would be admitting that the Documentum acquisition plus the subsequent ECM-related acquisitions that followed failed to flourish under his reign).

Asked for comment, EMC ECD president Rohit Ghai provided this statement: "EMC and Dell are moving full speed ahead on integration planning, while continuing to operate as separate businesses. Dell Technologies portfolio strategy and alignment will be revealed after the close. In the meantime, the Enterprise Content Division continues to be a healthy, growing business that is 100 percent focused on redefining the future of enterprise content management across our entire portfolio, including Documentum, InfoArchive and LEAP. Our strategy and execution has received overwhelmingly positive feedback from customers, partners and analysts, and we're enthusiastic about the future of our business."

And while all of that is great, Dell Software's products were well received too. Maybe Elliott Management will buy EMC ECD at a bargain price, too.

Title image "Sale" (CC BY 2.0) by  kevin dooley