When Hewlett-Packard acquired
Electronic Data Systems (EDS) in August 2008 for $13.9 billion, little did
anyone think that it would be one of the last big mergers in the industry
before the onset of the recession?
For some time it looked as if
the tech industry was treading on egg shells and there was no talk of mergers
or acquisitions. But with the wheels of the economy now slowly grinding ahead,
this trend seems to be reversing.
One of the reasons is the
age-old economic phenomenon of abundance of public companies; their sale price
therefore, is pretty low; and so, acquisitions are back with a bang, according
to Andy West, a principal in McKinsey&Co’s merger management practice. He
also said that the most likely mergers would be cross-segments ones, like a
storage company buying a network company. IBM has, in fact announced that it
plans to spend over $ 20 billion in acquisitions in the coming five years!
There are apprehensions of
course about the killing off of competition and vendor lock-in. On the positive
side, the emergence of cloud computing offers an escape route from the fast
growing IT giants.
But why are the software
giants bent upon buying up small firms? Here is an attempt to answer this
question from their point of view.
- IT managers would rather deal with a few vendors
as it lets them focus on providing solutions rather than integrating
multi-vendor products and engage in data collection and filtration.
- Buying small firms helps the big companies
diversify their range of services, networking tools, management software
and business intelligence tools.
- Helps them expand customer base
- Lets companies have a new product range without
having to build it from scratch.
Let’s take a look at some of
the acquisitions by major companies:
- Oracle acquired PeopleSoft and not only
consolidated their enterprise application business, but also cut down
competition in the ERP segment.
- Acquiring Sun Microsystems helped Oracle enter
the hardware sector.
- Google’s acquisition of DejaNews became Google
- Dodgeball, a social networking company was
acquired and renamed Google Latitude. Google has acquired over 100
companies; it’s easy to buy these companies and integrate them into
- Microsoft has acquired 146 companies and has
stakes in a further 61 companies.
- Most important acquisitions of Microsoft:
Hotmail, and Forethought, which was renamed Microsoft PowerPoint.
- CA Technologies acquired
eight companies to support its cloud strategy
- Similarly Apple acquired 25 companies, with
stakes in a few more;
- But the Mergers & Acquisitions King is
undoubtedly Cisco: in the past 6 years, they acquired 42 companies at a
cost of $18.8 billion. Their sales have grown by a whopping 10-11%.