Mergers such as NTT's plans to acquire Dimension Data (DiData) for $3.2 billion always create an interesting split in opinion, not around the proposed future value but around how the combined organizations will fare as a single entity.
The parties claim the merger will enable them to “offer new IT services worldwide in the age of cloud computing,” combining NTT’s network and hosting capacity with DiData SI capabilities, but will the combined entity be able to create an integrated set of global services offerings to take advantage of this trend?
Given DiData’s substantial footprint and rates of growth, this merger does certainly provide NTT with access to some previously relatively untapped and expanding geographies ($1 billion in revenues in each of Africa, Europe, and ANZ), as well as greatly expanding its network integration, IT, and managed services capabilities. However, the combined entity will still be no more than a buzz within the North American market.
To date, NTT has been noticeably quiet in the global services space and one of the few large, global telcos not to have such a pronounced, global strategy. Then again, maybe it has just watched as its peers have more often than not stumbled in this arena and has waited to pick up the “cheaper” pieces.
What’s in it for DiData? Access to NTT’s extensive hosting capacity, a strong balance sheet to invest in its “cloud” vision, and an end-to-end stack to bring to market. Interestingly, DiData was making progress in transforming itself from a purely Cisco-centric network integrator to a more mainstream, multi-vendor systems integrator. Clarity around the future of this program will be a top priority.
But there are historic warning signs that must be heeded in such a cross-cultural, cross-industry marriage, with the respective HQs so widely separated by miles, time zones, and cultures. Such trysts have not had the greatest success in terms of globalizing, integrating, and delivering a common vision: Fujitsu’s acquisitions (e.g. ICL & Amdahl) and NTT’s Verio acquisition highlight the difficulties in creating such an integrated entity.
And with a history of less than successful telco acquisitions of services organizations (Telstra/Kaz, KPN/Getronics), it does raise the question of whether the cultures of “big pipes/product/incumbent sales” can combine with a “consultative/dynamic/solution approach” to create the craved-for market success.
Unless the respective management teams align at the top, the resulting merged company could well be governed by the “slowest” common denominator of decision-making and drive minimal innovation beyond competitive reactions. The resulting culture clash may also be the major hurdle that can hinder any significant synergistic benefits.
A lot of competitors and partners will be watching this one eagerly
Is NTT buying into these “closer to the client, on-premise” capabilities to create an end-to-end capability or is this to gain access to DiData’s top-tier Cisco integrator relationship and thus enhance its procurement leverage (and volumes) in CPE-related deals?
Such a deal has a wide-reaching impact across industries and geographies and ensures a large set of critical eyes will follow the progress closely, so any integration needs to be well planned and executed.
The disparate cultures conundrum will be a substantial barrier (but not insurmountable), and will need to be considered in line with the potential impact on DiData’s ecosystem of relationships with SIs, equipment manufacturers, and other telcos, globally and locally.
NTT is procuring far more than geographic footprint, enhanced capabilities, and a successful and growing business; it is gaining direct access to customers through a more mature and embedded relationship model.