EMC Squared Equals Synergy

EMC (NYSE: EMC  ) is at it again. The data storage king, which fueled a turnaround through savvy shopping, this week bought another small firm that could fuel growth. This time the target was privately held Rainfinity, purchased for roughly $100 million.

It's interesting to note that this deal is remarkably small when compared with other recent EMC buys. For example, SMARTS was acquired for $260 million. And the total price tag to nab Documentum, Legato Systems, and high-flying VMWare totaled a heady $3.6 billion.

So, why get excited this time? Two words, Fool: account control.

Rainfinity has 50 customers. It's a good bet that a fair portion of those accounts would be new to EMC, and ripe for selling more EMC products. You see, Rainfinity complements EMC's strategy of "information lifecycle management" by making it very easy to move digital files without interrupting a network. Therein lies the so-called synergy that creates a rationale for the acquisition. (Yeah, I know, that sounds sooooo Dilbert. But it's true.)

I'll understand if investors remain ho-hum about this deal. After all, the premium was probably no more than three times sales, which means Rainfinity's 50 regulars probably account for somewhere between $30 million and $50 million in revenue annually. That's peanuts for a firm that did almost $9 billion in sales over the trailing 12 months.

But that's the short-term view. Account control is still everything when it comes to selling big chunks of indispensable hardware and software. Otherwise old-tech giants such as Cisco (Nasdaq: CSCO  ) and Oracle (Nasdaq: ORCL  ) would have gone stagnant years ago. Instead, they've just kept growing. And growing. And growing. Don't be surprised if EMC manages the same.

Get your fix of techie Foolishness with these related tidbits:

Do you think EMC is cheap? Find out by playing with the exclusive discounted cash flow calculator available to subscribers toMotley Fool Inside Value. Or, if you're not already a member, take a risk-free trial now. You'll get access to the DCF calculator and all of lead analyst Philip Durell's market-crushing stock picks.

Fool contributor Tim Beyers wishes he could acquire more time on the cheap. Tim owns shares of Oracle. You can find out what else is in his portfolio by checking Tim's Fool profile, which is here. The Fool has an ironclad disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 495404, ~/Articles/ArticleHandler.aspx, 11/27/2014 7:09:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement