KUHN CAPITAL Tuesday, March 20, 2018
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Is EMC Another CA?


Document storage specialist EMC recently announced yet another acquisition, this one of RSA Security for $2.1 billion in cash and options. That’s an EBITDA multiple of about 34, for EMC a highly dilutive deal. RSA had put itself on the block after struggling with missed earnings and analysts' concerns about its overdependence on its SecurID authentication product.

RSA is the latest in a series of about 20 EMC buys over the last three years. But unlike the others, it represents an effort to combine security with document management, a strategy similar to that of Symantic.

Of course we aren’t suggesting that EMC is mired in the sort of endemic corruption and financial underperformance that has characterized CA (formerly Computer Associates). But we believe that, like CA, EMC runs the risk of failing to properly integrate the heavy rain of applications generated by its M&A activity.

Not every software deal calls for product integration (some are simply plays for marketing and channel economies). However, EMC’s strategy appears to rely heavily on doing so, and we know making that happen is hard. Upon these treacherous shoals have wrecked not only CA but before that, Andy “Flip” Filpowski’s Platinum Technology and many others.

The market also appears to be holding its breath on EMC: its stock has declined from $14 to $11 in the last 12 months, with a forward PE multiple of 12 and an EBITDA multiple of about 10.

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