Mergers
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In a perfect networking world, vendors would make their little products and users would buy and use them. The vendors would always know just what to make, and users would all be happy with what the good vendors provided.
And if a user got a good idea for a new product, they would tell the vendor, and the vendor would make it.
But this isn't a perfect world, is it?
Sure, venders make products. But they're not always good products. And even if they are, sometimes users don't buy them. Both vendors and users sometimes don't even know what they want - too often organizations end up falling prey to the mass-marketing and industry hype that leads to incredibly overoptimistic projections for everything from ISDN to ATM to Gigabit Ethernet (and think how different the world would be if everybody believed Bill Gates the time he declared OS/2 computing's salvation).
Given all this, it's no surprise vendors often don't meet the wildly optimistic growth projections that either they - or, increasingly, Wall Street - set. And when they do miss, they often do what we do best in such situations - reorganize. Lay off a few people here and there. Maybe some middle-management staff. Or perhaps, like online stock-quote provider Quote.Com did this past week, you sweep the president and a few top managers out. Or perhaps, you sell off your only profitable division (for cash) and merge with another "not quite profitable" firm, Apertus did recently in an attempt to reinvent themselves as a startup.
Or perhaps you get the urge to merge even if you're doing fairly well.
In some situations the mergers are part reactive, part proactive. the recent merger of 3Com and US Robotics is a good example of this - US Robotics was being reactive in the market, 3Com a bit proactive. In fact, some vendors have come to rely upon this type of event to fuel their basic growth in the market - witness the MCI/WorldCom "merger" announcement last week (I'd sell for $37 billion too). WorldCom has grown as fast as it has because of its takeover knack, not because of any revolutionary technology.
| Cabletron to put its hands on DEC? Network World, 11/17/97. |
Apparently, somebody forgot to tell the IT market that the 80's - and its big-time mergers and acquisitions - are over.
Still, even among the page-one mergers and takeovers, there are often significant differences:
1. The Good. Good mergers add value, are aggressive and result in 1+1=3. The best acquisitions are product or market specific (i.e., vendors that want to get into a new product area and leverage their existing sales channnels). Cisco has done extremely well this way - purchasing technologies and engineering teams. In some cases, though, vendors attempt to succeed by buying superior or extended sales and support channels - as Newbridge tried in acquiring UB Networks.
2. The Bad. Bad mergers are reactive (i.e., two companies merging in the hopes of climbing out of the second tier they've fallen into). Take the creation of Bay Networks through the merger of Wellfleet and SynOptics. While Bay has certainly turned things around, the original merger was mainly an attempt to catch up with Cisco - amidst a general lack of consistent leadership post merger(the two companies continued to use their former names well after the Bay logo had been long established).
3. The Ugly. Nobody likes to be called ugly, so let's rename this the "unusual" category. One that comes to mind was the Gandolf/Infotron merger a few years back. This was a case of two small firms who, having had the market pass them by, decided that they could be stronger as a single entity. They were wrong. Others include the NSC acquisition of Vitialink (which went where??) - a good example of how to take a product name out of the market via acquisition.
In addition to the characteristics above, successful corporate blendings need:
Understanding: It needs to be clear (by management) what the goals are and how the individuals from each firm will work in the new corporate order. For most smaller acquisitions this is not a problem (how many times have we seen the "president" become the GM of some new division or business unit of the larger partner). But most "mergers of equals" end up with the management team being shuffled more than a few times after the initial merger.
Overlap: It must be minimal. Whether we are talking geographic coverage, sales channels or products, acquisitions or mergers where significant overlap occurs - especially in multiple areas - rarely work.
Support: The industry - and Wall Street - often have a lot to say about mergers and acquisitions. If they are negative about a particular deal, they can depress the market value of a company - making it harder for the company to retain the talented engineers and other employees with stock options. Fortunately, lower stock prices early in the game give new employees good incentive to turn things around. Still, merging two firms together simply to boost earnings is always a risky proposition.
So when it comes to mergers, or selecting a recently merged company, it is worth looking under the hood to determine if this is a case of the good, the bad, or the ugly. Sometimes it can be hard to tell. Just remember that even the worst of mergers are generally better than the original "two separate" firms pre-merger.
