A: The only time you hear about acquisition integration problems is when a company misses Wall St. expectations (see ""). To some degree, it can be a catch all as far as excuses go, but I think that most of the time the issues are much worse and much more ubiquitous than we know.
First, let's look at the basics. One company acquires another company for only a few reasons: they need a product or technology to complete or enhance their offerings into their existing customer base; they buy a company that extends the customer base; or they buy a company as a financial investment designed to diversify their overall portfolio. There are always other motivations (i.e., greed, stupidity, arrogance, nepotism, etc.), but these cover the bulk of the legitimate ones.
The second consideration is whether the acquirer is smaller than the buyer (typically) or about the same size. Sometimes it even happens when the one bought is bigger, but that only happens when something is very, very wrong.
The third consideration is whether to integrate the acquisition, or to leave it alone. You integrate the company you buys when they either have some products or technology you want. Now that you own the technology, you probably want the engineers who create and support it, but you can probably get rid of most of the other folks as they are redundant, thus lowering the real costs of the acquisition. You might pick up some talent at various levels along the way, but to integrate them means you are looking to get rid of redundancies and create economies of scale for the business you now own. If business A buys business B because business B has a great product and $50 million in sales, business A, which has $500 million in sales, can probably buy things cheaper, make them cheaper, distribute them cheaper, and so on. This makes business B more profitable and then business A fires the overlapped folks from the overlapped departments to make it even more so.
If you elect to leave it alone, you try to pass on as much of the savings you can letting business B leverage your size with finance, suppliers and distribution, but you tend to keep most of the folks and let the company run as a semi-independent. You get less economies of scale, but you tend to screw it up less if it was ok to begin with.
You can't buy someone almost as big as you and get away with leaving it alone. You have to integrate it or Wall St. will fry you. If one plus one equals two instead of three, then what was the point in the first place? Only giant holding companies can get away with buying smaller operating companies and letting them run on their own. Warren Buffet's Berkshire Hathaway is one such player. The companies that are purchased and left alone live and die on their own, with leverage from daddy. Those that are integrated cause the lions share of problems in the digestive tract.
Veritas had to be integrated by Symantec; it was a merger of equals essentially. There was no point in paying a premium to own Veritas unless you could take all the revenue and lose a bunch of costs. The devil, alas, is in the details. Symantec spoke about having problems integrating ERP systems (see ""). Imagine, two software companies having trouble integrating software systems -- maybe God is getting even. It would be like two GPS companies merging and blaming a blown quarter on everyone getting lost going to work, or two of the Big 5 joining up and having to restate earnings due to accounting irregularities.
Devouring a company is never easy, even under the best of circumstances -- cultures clash, human nature and ego's interfere, and politics are played. The trick is to keep the good and clean away from the bad, and that's not so easy. EMC has acquired a thousand companies, or so it seems, but it hasn't fired a whole heck of a lot of folks, which means they are keeping them, paying them, and not necessarily getting any incremental leverage from them (see ""). VMware is a resounding success - that was kept separate. Documentum, RSA and Legato were huge deals, and it is not easy to see from the outside if these deals will be home runs or bombs. FilePool was a technology buy that turned into Centera, and that's a billion dollar business now. With all the acquired cultures running around EMC these days I can't tell if it reminds me of the U.N. or the bar scene from Star Wars.
IBM, HP, Netapp, etc. all buy folks, and all have the same challenges along with the same variety of successes and failures. Many have made outright bad moves, either buying technologies that didn't fit or companies that couldn't fit. Oracle usually has to overpay because everyone on the selling side knows that Larry is going to gut the place on day one. If cost and operations are the issue, then that's the right play - as long as you don't need folks to hang around and help with any lingering issues.
I don't know that I can point to any one company in the IT space that has mastered the art of acquisition. Some have used it as a hedge (IBM), some for growth (CA), and some for unknown reasons altogether (Sun) (see ""). Many combine them all.
The one common mistake that seems to show up time and time again is the attempt to integrate too quickly. Wall St. often has expectations that are not in the best long-term interest of a company, but is so powerful that executives are forced to act hastily. That leads to good folks leaving and some bad staying and that can quickly ruin any goodwill that the acquired company had generated in its marketplace. People used to really like companies such as Sterling, Cheyenne, and Platinum, but not after CA got a hold of them. Oracle doesn't need to be nice, and instead they can, and are, ruthless. That's why they make money like they do. People cringe when they hear one of their vendors is being acquired by a monster like Oracle, because they know that life is about to get tougher, at least financially.
Occasionally, one of these deals really works though, and that keeps everyone coming back for more. Veritas made a pretty good move buying OpenVision, which they themselves made a pretty good move buying 12 guys from Control Data Corp. because those 12 created what became NetBackup. I can't even count how many billion of dollars of revenue NetBackup has produced, or the hundreds of billions of dollars of stock value. EMC bought unknown Conley for about $50 million - and generated more than ten times that selling its PowerPath software. They also bought Data General for a billion bucks, sold some pieces off to pay for it, and they have subsequently sold more than $10 billion bucks worth of Clariions midrange arrays. And, VMware is an absolute home run for EMC. A few of those successes, and you tend forget about some of the debacles, like giving CrossStor $300 million or so and not using a single piece of what you bought, as far as I can tell. HP bought Mercury and IBM bought FileNet recently - both multi-billion dollar deals. Will they work? Only time will tell.
Finally, there are some deals that just have to happen. Later this week, Brocade and McData will have their shareholder vote, which will pass, and then they have to wait and see what the Federal Trade Commission does (see ""). The FTC should let the deal go thru, because it is not only the right thing to do, it's the only thing to do. I love Cisco, but we can't let them have a free ride in this market, and the market won't support three storage switch makers. A strong Brocade/McData will at least ensures some legitimate competition for a while, and if QLogic can make a serious move into the space, I'll sleep a little better. That integration probably won't be easy either, but at least that one has all the right things going for it.
Send me your questions -- about anything, really, to sinceuasked@computerworld.com.
Steve Duplessie founded Enterprise Strategy Group Inc. in 1999 and has become one of the most recognized voices in the IT world. He is a regularly featured speaker at shows such as Storage Networking World, where he takes on what's good, bad -- and more importantly -- what's next. For more of Steve's insights, read his blogs.