Do High Tech Acquisitions Make Sense?

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I used to be studying lately in regards to the proposed merger between StorageTek and Solar. Two main know-how firms, one making a comeback from chapter and the opposite mired in a protracted droop, with a number of years of damaging predictions about their enterprise prospects.

High Tech Acquisitions

I’m not an insider and don’t know the particular particulars of this merger. It appears to make a minimum of some sense, as Solar has not traditionally been sturdy in Storage, which is StorageTek’s forte. Solar has been Non-public Labeling storage programs from an organization right here in San Diego for the previous a number of years (most likely doesn’t bode properly for that provider!). So having Storage Expertise in-house could possibly be a giant plus for Solar. The analysts have typically panned this deal, nonetheless. They don’t suppose it does something to reignite Solar’s progress, which is what they’re in search of. I don’t have sufficient stable data of the scenario to determine whether or not it’s a good suggestion from a strategic perspective or not.

What I do know is that it most likely will fail.

ODDS AGAINST IT

Predicting failure is a fairly large assertion for somebody with restricted data of the specifics of the deal. However I could make that assertion as a result of quite a few research have proven that 40-80% of all mergers fail. That’s a complete bunch of investor cash down the drain. And in Excessive Tech, it looks like it’s very onerous to seek out an instance of a extremely good merger or acquisition.

In fact, there are examples on the contrary. Laptop Associates constructed an enormous enterprise and shareholder worth with an aggressive acquisition technique, over a protracted interval. Cisco Techniques has made many acquisitions of smaller know-how firms, purportedly with nice success. They profess to have the “secret sauce” on how you can make acquisitions a success-and possibly they’ve. These are two excessive profile examples of enormous firms succeeding with M&A as a serious a part of their technique. However for each Cisco or Laptop Associates, there’s most likely 10-20 who’ve failed with a distinguished M&A technique. Symantec made claims like Cisco for a very long time, however lately ended up unraveling numerous their acquisitions. The current HP-Compaq mega-merger hasn’t panned out too properly (particularly for one former rock star CEO title Carly!).

TOUGH FOR THE UNINITIATED

So how do offers often work out for the “common” firm that may make an acquisition each couple of years or so? Not very properly, in my expertise.

I’ve been concerned in quite a few acquisition tasks, each as a marketing consultant and on the within of an acquirer. I spearheaded one challenge internally which led to acquisition of a software program firm, which I then needed to combine into my enterprise unit I used to be working on the time. You realize what? The shopping for is far simpler than the integrating!

And this, I imagine, is the place the good majority of mergers and acquisitions fail. Folks on the high fall in love with the “deal”—the strategic match, the potential increase briefly time period income, the brand new merchandise added to the portfolio, and customarily with the “numbers” of the deal. Funding Bankers and M&A consultants emphasize the monetary phrases and different “onerous” points of the potential deal—to the close to exclusion of the “gentle” components of the deal. Most of all, I believe it’s simple for senior administration to turn into “deal-junkies”—rapidly hooked on the adrenaline rush that comes with deal making. Sadly, all of this tends to obscure a extremely necessary reality. In Excessive Tech, if you purchase an organization, you don’t actually achieve possession of the folks—the important thing issue that makes an organization in our enterprise a hit or failure.

MANY PATHS TO FAILURE

The combination of the 2 organizations and their workers is nearly all the time an afterthought. Nobody provides a lot thought to this side till Senior Administration has already determined they need to do the deal. Then it’s time to start out to determine how two, usually disparate, cultures will mesh. In actuality, these steps ought to be reversed—the cultural match ought to be studied very intently at first, then different components of the deal ought to be examined. IF THE CULTURES DON’T FIT–USUALLY YOU HAVE A DISASTER ON YOUR HANDS. It received’t matter how properly the numbers work, how a lot value you may take out, or how a lot geographic or product synergy you envision. It is going to be a catastrophe.

Positive, there are a lot of different methods an acquisition can prove badly. Let’s record just a few:

Integration of MIS: There have been many good firms which have struggled (and even choked to dying) making an attempt to combine incompatible again workplace programs

Product Integration: That is very true within the case of software program firms. A software program firm “takes out” a competitor. They then spend the following 5 years making an attempt to combine the 2 code bases. Or they kill one of many merchandise, alienating the consumer base they only acquired. This one happens over and over.

Overlapping Manufacturers: The HP-Compaq merger is an effective instance of this drawback. HP paid an enormous worth for Compaq, and far of the worth was within the Compaq model. Did they want one other model—and what have they completed with it for the reason that merger? To at the present time, I don’t know which model of pc I ought to take into account shopping for—HP or Compaq. They stored each, and haven’t segmented them in any significant means. This causes confusion in addition to duplicitous expenditures. What’s worse, many occasions one of many manufacturers is solely ditched—which is the equal of throwing tens of millions (or billions!) of {dollars} out the window after your buy.

Dueling Managements: That is symptomatic of that basically humorous deal, the “merger of equals”. Nobody decides who will run the corporate till after the merger is remaining. This leads to an inside “wrestle to the dying” for management of the corporate for the following yr or two, whereas the remaining rivals run previous.

Channel Battle: Possibly each firms have massive seller networks with loads of overlap. Or the acquirer is primarily a direct vendor, and the goal primarily sells via the channel. These points may be among the hardest to handle. If completed poorly it would result in massive, sudden income reductions.

Exit Technique for the Goal: Typically occasions there doesn’t even have to be “cultural” folks issues for catastrophe to strike. If the acquired firm views the deal primarily as a chance to “money out”, there will probably be a mass exodus of key folks to the closest seaside, folks that you just want for the acquisition to make sense. Or worse but, they keep and turn into working zombies till their obligation runs out. It’s fairly onerous to place efficient “golden handcuffs” on everybody.

IT’S THE PEOPLE, STUPID

There are a lot of extra methods to failure than I may record. However they’re all minor in scope in comparison with the probability of the “tradition conflict”. To start with, the entire folks within the firm being acquired are “freaking out”. Will I’ve a job? Will I being doing the identical factor within the mixed firm if I preserve my job? Will I’ve the identical advantages? Who will I report back to? I’ve heard the managers within the new firm are raving lunatics who eat their younger! Within the buying firm usually the identical fears exist to a barely lesser extent. All of this results in suspiscion and mistrust between workers of the 2 firms.

A proposed merger is a chance for the rumor mill and imaginations to run wild. Key expertise is now open to exploring what alternatives is likely to be accessible within the outdoors world. Typically the mind drain may begin nearly instantly, properly earlier than the deal is even consummated. So the issues start early on. The stage could also be set for failure, and the ink isn’t even dry on the merger settlement. All of the whereas the blokes within the Government Suite are toasting themselves with Scotch, and patting themselves on the again. Finally they get round to forming a committee to take a look at “integration points”. However administration focus often doesn’t actually shift to this potential tradition conflict till the merger is consummated–and the fires have already begin. Productiveness crawls to a halt, whereas new turf battles emerge. Folks you don’t need to lose are leaving left and proper. The fellows within the fits don’t know what hit them–until the wall of fireside is simply too excessive to extinguish.

ACQUISITIONS CAN WORK—BUT SHOULD COME WITH A WARNING LABEL

I hope that every one of this doesn’t come off as damaging to the intense. It’s solely meant to warning. There are literally many good situations that may result in profitable acquisitions. Software program firms who look to purchase to fill a gap of their product line or aquire know-how to rapidly soar on an rising market phase, for instance. All these offers could make great sense, if executed correctly. I’ll discuss extra about acquisitions situations and success components in a future column.

However in Software program and different Excessive Tech markets, product cycles are quick and differential benefits are fleeting. In consequence it’s all in regards to the folks, since differential benefit must be regularly re-created. So the following time you consider making an acquisition to resolve a enterprise drawback or speed up your progress—take into consideration the folks first.

I’d like to listen to about your M&A experiences—drop me a notice.

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