Last week’s announcement of the acquisition of EMC by Dell in what’s turning out to be the largest ever merger in the IT world has found most analysts and specialists unprepared. It will take the deal 6-9 months to close but since both companies have a significant presence in Israel, the deal should start having an effect on the local scene even before that.

Here are 3 areas in which I believe we will see the most impact:

M&A

EMC has been one of the most active acquirers in Israel, not just in terms of the number of transactions but also in the size of the deals. The acquisitions of XtremeIO and ScaleIO (and even Kashya, back in 2006) have put Israel at the forefront of its next generation storage systems. Both companies are considered to be big successes for EMC which should raise the appetite for additional transactions.

Dell itself has made two acquisitions in Israel (storage vendor Exanet in 2010 and the Israeli subsidiary of Quest) but if we can draw any M&A related conclusions from Dell itself being taken private, then this is not good news: Between 2009 and 2012 Dell has made 21 acquisitions worldwide, but since being taken private in 2013 it has made only 2 acquisitions, both for fairly insignificant amounts. The huge debt Dell has taken in order to finance the EMC deal suggests that it may continue its “freeze” on M&A causing the Israeli ecosystem to lose one of its most important acquirers.

In addition, EMC is heavily involved as a corporate investor in many of the data center infrastructure early stage deals in Israel. I believe it is safe to assume that this we will see a decrease in investment activity as the Dell and EMC deal nears closing. The future of DELL/EMC as an investor in Israel remains to be seen although my feeling is that their heavy burden of debt will result in directing any excess cash on its balance sheet towards repaying the debt rather than making minor investments.

R&D Centers

With a reduced capability to make acquisitions, the new Dell/EMC entity will have to invest heavily in organic innovation in order to stay relevant in a fast changing IT world. EMC’s Center of Excellence in Herzeliya and Be’er Sheba as well as XtremeIO, Scale IO and Dell/Exanet are at the forefront of storage and big data innovation which is the core of the combined company’s new business. In addition, RSA’s acquisition of Cyota (2005) has established Israel as one of EMCs security innovation centers. Dell has mentioned several times that Security is going to be a major pillar in its strategy going forward and RSA’s center in Israel is an important asset.

VMWare

VMware is EMCs biggest asset, however it is operating as a standalone company, investing heavily in R&D and doing meaningful acquisitions. Therefore, no major changes are expected in the short term. Its presence in Israel (which is largely based on the acquisitions of B-hive, Wanova and Digital Fuel) is key to both its data center and cloud roadmap. There are many rumors that Dell may even decide to sell a portion of its holdings in VMware to repay some of their debt, which will distance VMware even more from the combined Dell/EMC giant.