Mergers: Taleo, Vurv, HP, EDS

                          Logic Behind Recent Mergers

                                                    Taleo and Vurv

Taleo and Vurv are hooking up. My research firm, Vital Analysis, did a report on Vurv last fall. Vurv is the rebranded Recruitmax and they had spent a lot of time replatforming their talent management solution over the last couple of years. The result of their efforts was debuted to much fanfare at the Fall HR Technology show in Chicago. The Vurv solution set is complete and looks good. Taleo will get a nice solution from this deal as well as 1700 customers.

This deal is interesting  as both firms offer relatively complete talent management solutions and have enjoyed similar customer/market successes. At first blush, it would appear that is a market share play. A review of the underlying technologies and geographic reach of the two firms would suggest that this deal expands the reach of the combined firm, lowers future development and operating costs and offers additional solution formats (e.g., SaaS). This deal should be good for shareholders and most employees. Some redundant back office personnel will likely be let go, though. Customers using old versions of either vendor's product line might want to seriously consider upgrading to a more recent product once the combined firm announces its post-merger product line rationalization strategy.

                                                     HP/EDS

EDS could probably tell HP management what happens when you buy a consulting firm. EDS bought AT Kearney several years ago and never really integrated it. The culture of a consulting firm is an interesting beast and it must be considered whenever a consultancy is acquired.

Some would argue that EDS is not a consultancy but rather an integrator or outsourcer. For the most part, this assessment is correct. The point about cultural integration remains though. The HP culture of old, an engineering excellence culture, would have been a hard one to fit in with EDS. One pundit described EDS several years ago as 'sharks in wingtips'. The EDS people I've met are solid with numbers and definitely know how to put together big deals. They can play to the top execs and the CIO with equal aplomb. In a really big deal, I'd give the advantage to the EDS sales team.

If you combine EDS and HP, I'd also give the vertical industry advantage to the EDS personnel, too. That said, I'm not so sure either firm is really great at getting verticals the way that integrators like Accenture (ACN) can.

I understood why HP pursued PriceWaterhouseCoopers years ago for their consulting expertise. That deal could have really changed the HP landscape. PWC Consulting has been a boon to IBM although that took a while to become accretive. The HP/EDS deal may not have as many rough patches before it as EDS has a lot of long-term outsourcing arrangements that should remain relatively untouched post-merger. It's the long-term view of this merger that I'm questioning.

What's tougher to figure are the real long-term upsides in this merger. HP could help EDS with additional cost reductions as more HP equipment is brought into its deals. HP could also see hardware sales improvements as EDS utilizes more HP (and not IBM) gear. Both firms are already global but the increased density of personnel and abilities in lightly staffed markets should help shares.

Both parties understand mergers. EDS used to be owned by GM and bought ATKearney. They've even done a joint venture deal with Hitachi in the past. HP has bought Compaq and countless other firms. Both companies have acquired many smaller software and services firms, too. Merger integration skills should be available in-house (and, if not, HP should give me a call) but the scale of this one is going to be big and complex.