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EMC bought Virtustream to add managed cloud services for mission-critical enterprise applications to its portfolio and strengthen its hybrid-cloud strategy. Virtustream brought cloud software, services and its xStream management platform; EMC planned to use its customer and service-provider reach to help move workloads into cloud environments. EMC announced the all-cash deal in May 2015, and it closed on July 9, 2015.
What Virtustream added to EMC
EMC already sold infrastructure and cloud-related products through a federation of businesses. Virtustream added a managed-services capability: software and services designed to run enterprise applications in cloud environments. EMC’s announcement singled out mission-critical workloads, including SAP, rather than presenting Virtustream as a general-purpose consumer cloud service.
A central part of the offering was xStream, Virtustream’s cloud management platform. EMC said service-provider partners could use it to build and deliver services under their own brands. That gave EMC a way to extend its cloud offering through partners, alongside services delivered through its own business.
Why EMC saw a strategic fit
EMC framed the acquisition as a way to help customers move applications into cloud-based IT environments, including a mix of private and public cloud. In EMC’s view, the combination of managed services, software for enterprise workloads and its existing portfolio would make its hybrid-cloud offering more complete. The pitch joined two needs: technology to migrate and manage workloads, and channels through which customers could access those services.
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In the May 26, 2015 announcement, EMC chairman and CEO Joe Tucci called Virtustream “an exceptional company” and the deal “a critical and transformative acquisition for EMC in one of the industry’s fastest-growing and most important sectors.” That was management’s characterization of the opportunity, not independent proof of Virtustream’s market position or of the acquisition’s eventual success.
A specialist business inside EMC’s federation
EMC said Virtustream would operate as a separate business in its federation. Virtustream CEO Rodney Rogers was to report to EMC chairman and CEO Joe Tucci. The structure indicates that EMC intended to retain a distinct operating identity for the specialist while connecting it to EMC’s portfolio and reach; that is an interpretation of the announced arrangement, not a stated guarantee of how the business would operate over time.
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What EMC said it would pay—and what filings recorded
EMC announced an all-cash transaction valued at approximately $1.2 billion. Later SEC filings show acquisition-accounting figures close to that rounded announcement value:
| Figure | What it represents | Source and context |
|---|---|---|
| Approximately $1.2 billion | Announced all-cash transaction value | EMC announcement, May 26, 2015 |
| $1,219 million, net of cash acquired | Acquisition consideration reported for the quarter ended June 30, 2015 | EMC Form 10-Q, 2015 |
| $1,220 million, net of cash acquired | Acquisition accounting disclosure for 2015 | EMC Form 10-K, 2015 |
| July 9, 2015 | Acquisition completion date | EMC completion announcement and Form 10-K |
The slightly different filing amounts are reported net of cash acquired; they are not a reason to describe the announced price more precisely than EMC did. The acquisition closed on July 9, 2015.
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What the announcement did not establish
EMC forecast that the acquisition would add to revenue and be accretive to earnings per share in 2016. Those were forecasts made when the deal was announced, not verified outcomes in the cited transaction materials. The announcement and filings establish EMC’s rationale, terms and closing date; they do not by themselves demonstrate that the strategy succeeded or establish Virtustream’s later performance.
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