High Tech Acquisitions - Is This A Great Idea Or Simply A Harmful Plan?
I was reading recently about the proposed merger between Storage Tek and Sun. Two significant technology corporations, one making a comeback out of bankruptcy and the other stuck in a long slump, with several years of negative predictions about their company prospects.
I don't have enough solid knowledge on the situation to determine whether or not it is a good idea from a strategic point of view or not. What I do know is that it probably will fail.
If you are in a similar situation and are seeking bankruptcy services, consult a professional. There are plenty of ways an acquisition can turn out horribly. Do not let this be you and your business.
Product Integration: A software company "takes out" a competitor. They then invest the next five years trying to integrate the two code bases. Or they kill one of the products, alienating the user base they recently acquired.
Overlapping Brand names: The HP-Compaq merger can be a great example. HP paid a huge price for Compaq, and a lot of the value was in the Compaq brand. Did they need another brand and what have they done with it since the merger? This caused confusion as well as duplicitous expenses.
Dueling Managements: This ends in an internal "struggle to the death" for power over the business for the next year or two, while the remaining competitors run past.
Channel Conflict: Perhaps both businesses have large dealer networks with a lot of overlap. These issues are usually a few of the toughest to manage. If completed poorly it is going to lead to huge, sudden revenue reductions.
Exit Strategy for the Target: If the acquired company views the deal primarily as an opportunity to "cash out", there will probably be a mass exodus of key folks, persons that you simply need to have for the acquisition to make sense.
I hope that this does not come off as extremely negative. It's only meant to caution. There are many good scenarios that can result in prosperous acquisitions.
Software businesses who look to buy to fill a hole in their product collection or acquire technology to rapidly jump on an emerging market segment, for instance. These types of deals can make tremendous sense, if executed properly.
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