Acquisition is a win for shareholders, yet one company deals with value-based products and the other with premium gear, and that’s a tough combination to mix.
In a surprise move, Hewlett Packard announced a definitive agreement to acquire Poly, a vendor of workplace collaboration solutions for $3.3B in cash, which is inclusive of about $1.6B in debt.
This marks the end of an era for Poly, formerly Polycom, which was one of the pioneers of videoconferencing. The current Poly company is a combination Polycom business and Plantronics, which acquired the video vendor in 2018. Later that year, Logitech attempted to purchase Poly, but the deal fell apart at the 11th hour.
Hybrid Work Creates a Potential Uplift for Poly and HP
This week’s news combines the collaboration endpoint business of Poly with the office equipment, primarily printers and PCs, of HP. On paper, this makes some sense as businesses will be looking to refresh office equipment in preparation for hybrid work.
In the news release, Enrique Lores, President and CEO of HP, stated, “The rise of hybrid office creates a once-in-a-generation opportunity to redefine the way work gets done. Combining, HP and Poly creates a leading portfolio of hybrid work solutions across large and growing markets.”
Breaking down this quote, I’m in full agreement that hybrid work creates an unprecedented opportunity to redefine the way people work. I’m less bullish that the combined company can capitalize disproportionally on this “rising tide.”
It’s important to note that it’s HP, Inc., and not HP Enterprise (HPE) that is acquiring Poly. HPE’s portfolio is strategic technology, comprised of network infrastructure via its acquisition of Aruba Networks, which includes Wi-Fi, 5G and SD-WAN, AI/ML and data analytics, data center infrastructure and a broad range of cloud services.
In contrast, HP is largely comprised of commodity hardware like printers, laptops, desktops, and peripherals. Poly has historically been known as a high-end, premium price vendor, although it has been trying to move down market.
In some ways, it might have made more sense for HPE to buy Poly, as it has oriented much of its network portfolio around hybrid work. Also, historically, collaboration has gone together with networking much better than PCs.
Short Term Benefits are Obvious, Long-Term Value is Unclear
Again, on paper, the deal does have some short-term logic. HP can help Poly with supply chain and logistics, so I do expect some immediate synergies. Also, combining the channel should create broader distribution and an uplift in sales. But the two companies are currently partners and based on channel feedback, this “1+1 = 3” scenario has yet to materialize.
I believe the biggest issue with the partnership and with the acquisition is that there aren’t many, if any, synergies between the products that can result in cross selling. Culturally, one company deals with value-based products and the other with premium prices, and that’s a tough combination to mix.
A few years ago, there might have been a conference room play, as Windows-based PCs were an important part of meeting room infrastructure as they powered video systems. Today, that’s largely changed with Android-based appliances becoming the standard. Outside of meeting rooms, the low end of the Poly line is personal cameras and headsets offered as an add-on to PC sales. But Poly has historically derived much of its value from the high end, which is anything but an add-on sale. If the low end, peripheral business is what HP wanted, the $3.3B price tag is a steep one.
Good Exit for Poly Shareholders
The purchase price is a good exit for Poly shareholders, a company that has struggled since the acquisition by Plantronics as they were weighed down by debt. As mentioned earlier, the concept of creating a single company to sell a portfolio comprised of peripherals such as headsets, cameras, PCs, printers, monitors and more does have some logic, particularly in smaller companies where there might be a single buying center.
As one moves up-market, the IT pros responsible for the HP products are not the same as the ones buying Poly. If they were, the channel partnership would have already born more fruit. How customers of the combined organizations benefit is unclear outside of some supply chain improvements.
I could be wrong here, and HP consumes Poly and then drives the $500M in revenue synergies by 2025 as stated in the press release. But I have reached out to several industry colleagues and all of them seem to think this deal fits together about as well as a square peg and a round hole. The big winner out of this might be Logitech, which has completely revamped its products at the high end. It has already been taking share from Poly but could stretch its lead even more if the new integration hiccups at all.