acquisitions

[David Farber <dave () farber net>]

Begin forwarded message:

From:
Date: January 14, 2009 8:17:40 PM EST
To: dave () farber net
Subject: acquisitions ***please anonymize***

Dave, for IP if you wish, but ***please anonymize***

I spent some time in Silicon Valley in the go-go days, and saw several
acquisitions, one from the acquiring side (part of the due diligence
team), one from the acquired side, and others as a bystander.

After having been acquired, then doing due diligence on the next
acquisition, I was in a leadership training gig in the home country of
the acquiring major telecom company -- which I believe to be very well
managed, it's a good and well-respected company in our industry.  One of
our speakers was the company's veep in charge of acquisitions.  He
asked, "Has anyone here ever been involved in an acquisition?"  I stuck
my hand up.  "What did you think of the process?"

"Ya really wanna know?"
"Yes."
"I don't think the acquisition model is working very well for us."

He nodded.  "Industry-wide, seventy percent of acquisitions are
ultimately declared to be failures."

Seventy percent!!!  Across the industry!  And there are *enormous*
pressures inside a big company *NOT* to declare an acquisition to be a
failure -- having to write down a lot of costs (hundreds of millions of
dollars, often) really hurts the quarterly bottom line, not to mention
the career of the veep who championed the acquisition.  So, by the
measures of disinterested parties, the failure rate is probably quite a
bit higher.

The perception is that it's difficult for big companies to think outside
the box and do the things that will ultimately destroy/reinvent their
industry.  BUT, if it's going to be done, SOMEONE will do it, somehow,
someway, and if you're the big company you're better off being in on the
cannibalization of your own industry than passively watching.  The
thirty percent or less of acquisitions that are successes are simply
deemed to be worth it.  You put in a BIG pot of money, and keep buying
until you find the right ones.

I'm sure some companies are ultimately better at it than others.
Perhaps Cisco is good and Nortel not.  But I would caution watchers,
especially those who were involved, from drawing too sweeping a
conclusion based on only one or a few datapoints.






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