Friday, 19 December 2008

Tales from the Basement - Mergers and Acquisitons (2)

So in a previous post, I talked about M&A and how difficult it can be for someone to be M&A'd, because that requires a lengthy and tiresome process of integration and people shuffling and most importantly, resource allocation.

Well when it comes to technology, acquiring companies is a way of living, or to be more exact, a survival tool. Talking to someone at IBM, who's been there for 25 years, and is now on the Domino project, he said that today, on average IBM acquires a company every three months. that's in line with Domino, which is a meta software, I.e. a software that manages software. Well, wat is important in this point is the managing software bit. For a company like IBM, which is, according to my friend Kags (an IBM alum), is that the company is just too corporate, and that it takes a lot of effort and people to get the ball rolling on a project from scratch. So sometimes, its just easier to just buy a company with a working product.

But when they do that, there are 4 decision

1) business as usual: the small company has a good idea, its working and its staff are performing. With a little more push, resources and money, they can go to the next level,. The aquiring company can take them there, and everyone shares the profit. Example : Smith Barney

2) the idea: the aquiring company just wants the idea, with its patents and copyrights, when it can use its own staff to gut it and rebuild it. This is when it gets ugly, because that means people will be fired, job description will be rewritten and previous work may be chucked out.

3) client base : sometimes the company just want the clients and exposure to the market , throwing money at it, allocating engineers and staff, and providing with a wealth of resources. Example: YouTube. (Google just wanted the exposure and retaining as much users in its realm as possible)

4) Hostile Markets: Sometimes, small companies are like little thorns in a bigger company's side, and they are stealing clients from them, and well, that company is running the risk of loosing some clients, and if that company gains enough momentum, or enough small companies spring up and start merging, small fish may become bigger and evolve into serious threats. So, for the monolith company, its just easier to buy out the smaller company out of the market. Often, this is the whole point of the small fish anyway, is to be bought out, because they got the idea, and they really want to get more money for it, because it's not really there intention to make a long term business, but rather just cash in now on their idea. So, they come up with the idea, build something around, get a proof of concept going, and sell it to the highest bidder. (My style of companies) . Example of a killer whale: Microsoft. Example of small threats becoming a risk: Intel and AMD.

So basically that is the logic behind M&A, from a managerial side. I am not talking about M&As at banks, because these idiots are just out to make the cut on the sale and the aftermath is least of their concern. (Much like consulting, which I also hate).

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