Valley security deal hits a low for mergers

Wall Street has witnessed plenty of bad mergers over the years. A deal between Symantec and Veritas, however, may have set a new standard for ill- fated corporate marriages.

Symantec, best known for security software, bought Veritas, an information management company, 11 years ago for $ 13.5 billion. It was the largest software merger at the time, and came just three years after Hewlett- Packard’s $ 25 billion acquisition of Compaq. Both megadeals had the same goal: to create a more efficient company that sold a variety of products and services under the same umbrella.

But after more than a decade of pure dysfunction, the two Silicon Valley software giants finally parted ways: Symantec, originally based in Sunnyvale, sold Veritas, headquartered in Mountain View, to an investment group led by private- equity giant Carlyle Group for $ 8 billion, about half of what Symantec paid for the company in 2005 when adjusted for inflation. The deal took effect late last month.

You would expect the two companies to go their separate ways and leave it at that. But when I spoke to new Veritas CEO Bill Coleman, the former Symantec board member seemed willing — almost eager — to discuss what went wrong.

“There’s no mystery here,” Coleman said. “It’s all about execution. Nothing was executed.”

The Symantec- Veritas union offers a classic example of how a merger that looked so good

on paper could fail so miserably in reality. Despite carefully populating the combined company’s board with directors from both, the new entity could not integrate the two companies’ sales teams and failed to craft a long- term strategy that anticipated big data and cloud computing.

Symantec specialized in protecting information, while Veritas focused on managing it. Companies that were buying informationmanagement services from Veritas could use Symantec to keep that information safe.

Judging by the corporate structure, integrating the two cultures seemed to be a top priority: Symantec CEO John Thompson became chairman and top executive of the combined company while Veritas CEO Gary Bloom was vice chairman and co- president. Four Symantec directors, including Coleman, joined the new board, which also included three directors from Veritas.

Unfortunately, the two companies and their sales teams could not get on the same page. In fact, Coleman estimated that the merger ultimately wound up costing Symantec hundreds of millions of dollars in duplication and inefficiencies.

Prior to the merger, Veritas generated about $ 2 billion in annual revenue. In announcing the separation last year, Symantec estimated that Veritas produced $ 2.5 billion a year. After all of that drama, the needle barely moved.

Emilie Feldman, an assistant professor of management at the University of Pennsylvania’s Wharton School, said that companies often focus on numbers, rather than things that can’t be immediately quantified on a balance sheet.

“It’s easy to recognize those cost savings,” said Feldman, who teaches a course on mergers and acquisitions. “It’s difficult to manage those ‘ soft’ resources like brands, culture and human capital. It’s a stew of things that’s hard to articulate.

“It’s no surprise that Symantec and Veritas had problems with sales force integration even though they were well aware of the potential problems,” she said. “You don’t integrate teams to cut costs, but rather to grow revenue.”

Coleman said he was ultimately frustrated with the board because it failed to craft a practical strategy that addressed both the company’s immediate needs and the challenges of a future that is constantly being rewritten by new technology.

“We had a vision of a strategy,” but not the strategy, Coleman said. “You have to do both, the now and the future. Technology is an industry of serial disruption. You don’t get time to breathe. It takes five years to do anything.”

But Coleman sees a bright future for the new Veritas. Given the explosion of Big Data, Veritas can help companies not only to store, retrieve and organize data but also to glean insights from it. For example, Veritas can help a company detect real- time changes in consumer demand and adjust its supply chain to get the right products to the right markets, he said.

If Veritas simply grows with the market, the company can generate sales growth in the midto high single digits, Coleman said.

“You have to know where you are and where you are going,” he said.

“You don’t integrate teams to cut costs, but rather to grow revenue.” Emilie Feldman, Wharton School, University of Pennsylvania