We've had a lot of acquisition failures of late. Many were impressively expensive. In short time, we saw Cisco shutter its $500 million Flip, which still led its segment of the market up until the last day. Google shut its more modestly priced $200 million Slide a social game acquisition, and HP set the record of the month by shutting down its $1.2 billion Palm acquisition (though it may continue WebOS or sell it). I find it somewhat ironic that this presentation - which supported the acquisition - was accidentally prophetic in its argument (on slide two) that Palm will repeat HP's Voodoo success (it had shuttered Voodoo PC some time ago).
This week is VMworld, a huge event for EMC and VMware showcasing that acquisitions don't always fail and suggesting that there may be a better way.
The Success of VMware
The success of VMware and RSA is largely due to the fact that EMC has left the companies largely intact and managed them as assets. When it had a problem it replaced the CEO at the top and the problem abated. Products continued to flow during the acquisition period and both customers and employees were heartened by the addition of EMC as a funding source and the promise of a closer relationship for joint projects, but other partners like Dell and IBM didn't run away and most disruptions were avoided.
In short, the reason it succeeded was that EMC didn't try to integrate it inside EMC but left it alone and managed it like an investment. This made it easier for EMC. It preserved the value it had purchased, and, as a result, EMC got a massive return on its investment.
Integration Mergers Are Company Killers
If you think about it, this is likely how most acquisitions of successful companies where the products are to be retained should go. The price of the firm is set on the combination of technology, customers, employees and future prospects that the firm has painstakingly created. If you think about it, very few firms survive to become a success. The majority fail in five years.
That makes them rather fragile and if you take something that is just lucky to be alive and try to graft it onto something that is already living, well, you'll likely make both sick, but you'll probably kill the acquired firm. This is because you are making so many changes that the combined change takes something that is working and kills it.
Think about it, with a company acquisition you basically change out the board that then may reassess the CEO. With an integration merger you typically change, well, everything. You change out the processes that define everything from how people are hired to how products are developed. You toss groups into new organizations where they lack training in the unique rules of the parent. You change compensation, incentive programs and benefits. You change executive teams, sales teams, marketing teams and core services.
In short, integration mergers, from the perspective of the firm acquired, are like body replacement surgeries and chances that the acquired company will keep what it purchased are pretty much nonexistent, which is why the working failure rate for this approach is 80+ percent.
Wrapping Up: BMC Alternative
I'm actually wondering if there is a good reason to do an integration merger. You may recall that a while back I looked at the BMC-NEON Enterprise acquisition. Here, it bought the parts of the company it wanted, hired the employees it wanted, and had the positive benefits of an integration merger without the high risk of failure.
So I think there is a better approach - one that has wholly owned subsidiaries at one end and acquisition by parts at the other, avoiding integration mergers and their massive failure rate altogether. Just because a lot of people do something isn't a reason to do it and Dell of late has been showcasing success after success emulating what EMC did with VMware and RSA. It is my thought this week that we should emulate the successes and stop doing things that have a high probability of failure.