Sometimes you wonder why companies are so desperate to make acquisitions, especially when everyone knows the rate of successful mergers is pretty low.
This summer's cat fight between EMC and NetApp over Data Domain is a case in point (although plenty of rationalizations were offered). EMC's Chuck Hollis has an interesting overview of the reasons companies have to make acquisitions, particularly in the technology industry, where innovation comes at a premium and only gives a short-lived competitive advantage. Hollis says:
the things that fuel the initial phases of growth of any successful IT vendor only have a limited life span -- the rocket fuel doesn't last forever.According to Hollis, once a company achieves a certain size and success, it's either bought or get bought. That's because success breeds imitation, and then the only alternative to being swamped by competitive offers that are cheaper, better, or both, is to grow bigger. And unless you're willing to acquire puzzle-pieces that fit with your offering, either your competitors are going to acquire those puzzle-pieces and out-maneuver you in the market, or you yourself are going to be the target of such an acquisition.
The lesson: companies that want to stay independent has better be ready to impinge on the independence of others.
But it's not as simply as having the financial means (although that's a precondition) â€"- acquirers need to develop a specific M&A skill-set.
The only proven way to make M+A work is to invest in building a machine and doing it over and over and over again. That's the formula at Oracle, Cisco, EMC, Microsoft and the other big players. We're not perfect, and we all make mistakes, but each company has a core discipline and track record in making acquisitions work.Of course it helps if you have a good pool of potential targets.
[Image source: tempofeng via Flickr]