Tech Legend Laments Losing to ‘Acquisition Mania’ After 37 Years

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    On Aug. 3, Microchip Technology announced the completion of its acquisition of Micrel, a San Jose-based semiconductor company. In some respects, it was a rather mundane development—just one more acquisition in a technology sector that has experienced remarkably rapid consolidation in recent years. But in at least one respect, it was earth-shattering. Just ask Ray Zinn.

    Zinn is the founder and now former CEO of Micrel, a company he bootstrapped 37 years ago, making him the longest-serving CEO of a publicly traded company in Silicon Valley. For Zinn, this was hardly just another semiconductor industry acquisition. It was the loss of a company he talks about like a loving parent. It was devastating.

    When the definitive acquisition agreement was announced on May 7, there was no public hint of any such devastation. Zinn dutifully played the role of gracious relinquisher. In a letter to his employees, Zinn expressed his full support of the acquisition:

    As you all know, we have accomplished a tremendous amount on this journey, so, it is with mixed emotions that I say that I am pleased with this outcome and I want you all to know that I am fully supportive of this transaction. Microchip is a terrific company with whom we have discussed exciting ideas for the future. I believe that joining forces is in the best interests of Micrel, our employees, and our shareholders. … Now, Micrel will join Microchip’s ranks to expand their customer base and offer new opportunities to provide innovative products to our industry’s leading customers. Under the leadership of Microchip’s CEO Steve Sanghi, the future of our combined company is bright.

    Yet when you speak with Zinn, it quickly becomes clear that his true feelings were far removed from what he expressed in that letter. To say Zinn is bitter is probably an overstatement. To say he is disappointed is unquestionably an understatement. In a remarkably candid interview last week, Zinn shared his true feelings about the acquisition. The interview was conducted in the run-up to the release of Zinn’s forthcoming book, “Tough Things First: Leadership Lessons from Silicon Valley’s Longest Serving CEO.” So the first question I asked was what the toughest thing was about selling his company. Without hesitation, Zinn said the toughest thing was agreeing to do it in the first place:

    My board came to me about all these investors—we had [the hedge fund] Starboard come in a year ago—my board said we had this pressure on us as a company to grow revenue. I was reluctant to take on a lot of debt to acquire companies, and that obviously bothered my board, because they wanted me to focus on growth of revenue, not on profitability. They said, ‘Let’s run a process—let’s find out what the company’s worth.’ That’s what Starboard wanted anyway. So the decision to do that was the toughest thing for me to do. I wanted the company to be sustainable on into the future, because I think we have a good culture, and I wanted that culture to live on. Of course now that Microchip has it, they’re going to put their culture in place, and we will no longer be Micrel. I feel bad about that, because I started the company with my own money from scratch, and no VC money. And now I’ve had to turn it over to somebody who has a different philosophy about how to run a company.

    I noted that in almost any acquisition scenario, there are legitimate arguments against the acquisition. So I asked Zinn what the most compelling arguments against the acquisition were in this case. He identified two:

    Microchip wasn’t willing to pay a premium to the current stock price—that was a challenge for us. Another argument against the acquisition was that you’re going to lay off a lot of people—either on their side or on our side, a lot of people are going to lose their jobs, because when you consolidate companies, the whole purpose of it is to reduce headcount. To me, that puts a lot of families in jeopardy, and that bothered me tremendously.

    There was a very interesting and well-crafted article about Zinn in the San Jose Mercury News on July 31. When the reporter asked Zinn if Microchip Technology will still be around in 10 years, his response was, “No.” So I asked him what’s going to happen to it. He didn’t mince any words:

    It’s going to be acquired, probably, with this acquisition mania that’s going on. What goes around, comes around, is what I meant by that. They’re acquiring a lot of companies—they’ve acquired 16 companies in the last few years, and he’s going to be acquired. I mean, it’s going to happen. Look at Avago acquiring Broadcom—nobody would have thought that. So that’s what I meant—with this mania going on for acquisitions and consolidation, they’re going to be forced into the same thing I am. I didn’t mean anything disparaging—all of my stock has been converted to Microchip stock, so I want them to do well.

    At that point I asked Zinn if he could have one do-over as CEO of Micrel, what it would be. I didn’t think he could be any more candid than what he had been up to that point in the interview. I was wrong:

    I’d be more careful about the board I selected. I didn’t think I was that vulnerable—I didn’t realize the influence that the investors have on the board. So I’d be more careful about that—I learned a big lesson on board tactics that ended up biting me. Not that I did a bad job—these are very competent and capable people. I just should have been more careful and more concerned about how I selected the board members. I was surprised when they did what they did, by the way, because I thought these were good guys. They are good guys—I don’t want to say they aren’t good guys. But that they would have turned on me, and wanted to sell the company—that’s a concern. Maybe I’m a little bit harsh right now, and I shouldn’t be, because I’ve just gone through losing my company. That’s kind of where my mind is, and maybe I’m not even being fair. Because these are good men. They just went in a different direction than I wanted to go, and they’re five, and I’m one. So I lost. I shouldn’t be so harsh on them, because they’re good people. But it’s just not what I wanted to have happen.

    Zinn went on to say that there’s nothing else he really regrets:

    Because here’s the thing: A mistake is not a mistake as long as you correct it. As I grew Micrel, I corrected all my mistakes as I went along. I went through five downturns—that’s more than any other company, except maybe Intel and companies like that. But very few companies have been through five downturns like we have—we survived every one of them. We were a very sustainable company. We were profitable—we never lost money, except for 2002, when I consolidated two fabs down to one. So we were profitable and sustainable, and to me, that’s what you want for an ongoing business. But the investors want the stock price to keep going up, and I don’t control that. I can pay a dividend—and by the way, I returned 100 percent of my cash flow back to my investors. I bought stock, I paid a dividend—I gave every dime I made back to my investors. And yet they wanted more. That’s a difficult environment to operate in.

    I also spoke at length with Zinn about what has changed over the years for the better, and for the worse, in Silicon Valley. I’ll cover that in a forthcoming post.

    A contributing writer on IT management and career topics with IT Business Edge since 2009, Don Tennant began his technology journalism career in 1990 in Hong Kong, where he served as editor of the Hong Kong edition of Computerworld. After returning to the U.S. in 2000, he became Editor in Chief of the U.S. edition of Computerworld, and later assumed the editorial directorship of Computerworld and InfoWorld. Don was presented with the 2007 Timothy White Award for Editorial Integrity by American Business Media, and he is a recipient of the Jesse H. Neal National Business Journalism Award for editorial excellence in news coverage. Follow him on Twitter @dontennant.

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