One of the year's more interesting trends is the buying spree in the tech sector. What's interesting about this particular bout of mergers and acquisitions is that big vendors aren't just buying competitors-they're buying as a way to enter whole new markets.
Most recently, you've read about Dell and HP's bidding war for 3PAR. But there was also Oracle's move into Sun. The trend seems to be toward big vendors selling "optimized systems" that combine hardware with software.
But in a recent Wall Street Journal interview, the director of mergers and acquisitions integration at PricewaterhouseCoopers, Marc Suidan, says these types of "transformational" acquisitions can be tricky to successfully pull off. Worse, many tech companies lack the experience needed to ensure success. A recent PricewaterhouseCoopers report says nearly 70 percent of Silicon Valley companies polled "cite a lack of experience with so-called transformational deals, in which acquirers look to gain entry into new markets or produce new products."
That's surprising, given how long M&As have been a staple part of business for the tech sector. But again, the difference now is that before they were nabbing smaller companies with a similar product and similar business plan. That made integration-both business and technical-simpler. Even when the deals became larger, more complex, there were still enough similarities to help with success. That's changed, according to Suidan:
Now, we're starting to see the forefront of what we call transformational deals, in which companies are looking to get into a new space to drive growth. These are a lot more complex from an integration standpoint, and the jury is still out on whether or not companies are good at it.
It's the business model that can really throw things off, but reading Suidan's interview, it's easy to see how that business model would affect the underlying technologies. He gives the example of a company making embedded chips that may be selling to five original equipment manufacturers (OEM). Think of the differences that company faces when it buys a company whose model is to sell to enterprise customers-the differences in the sales forces, compensation, CRM systems, lead-generation models and even delivery are intimidating.
The article lists several keys to success that, frankly, any company would benefit from following, even you're sticking to acquiring related markets. For instance, Suidan says executive sponsorship is critical because "one of the biggest success factors in integrations is how closely executives monitor, make decisions and hold people accountable." He also suggests you make sure you've got the infrastructure-IT and otherwise-to support the deal:
Let's focus on fixing up our own ship before we go on a buying spree. It's a difficult message to relay to a company, but mature bidders know they can realize better synergies if they get their own house in order.
You might also want to check out these IT Business Edge posts on how to ensure integration success during M&As:
Organizing Integration During Merger and Acquisition
Don't Let Archiving Integration Costs Surprise You During M&As
Tackling the "People Problems" of Integration