Perspective: High-tech megamergers: Still make sense?

Fueled by Oracle's acquisition of Siebel Systems, Silicon Valley once again asks itself if megamergers are good for the industry.

The answer to this philosophical question was inadvertently given by former president Jimmy Carter when he spoke about the nature of war. His comment could also be used to describe the essence of these acquisitions: "War may sometimes be a necessary evil, but no matter how necessary, it is always evil, never good."

It's common knowledge that most high-tech acquisitions fail to live up to their promises. However, most technology megamergers are made at the wrong time for the wrong reasons. In fact, very few actually create any real value; they actually increase the potential for company failure. In the end, each of these mergers can be labeled as either a destroyer, a loser or a winner.

The reality is that while I can name 10 less-than-successful mergers off the top of my head, I cannot name a single stunning success.

Informix Software was flying high in 1996, ending the year at $1 billion in revenue. Its stock had been named by The Wall Street Journal as the top five-year performer, and Phil White, chairman and CEO, received the Nasdaq's Legend in Leadership award. Then the company paid $400 million for Illustra, a "hot" technology company. Informix had high expectations that this acquisition would propel the company past Oracle. The reality of the acquisition would be quite different. It would ignite an incredible series of events that would destroy the company and ultimately land Phil White in jail.

Hewlett-Packard's acquisition of Compaq Computer was the most controversial merger in Silicon Valley history. It was also a loser that cost HP CEO Carly Fiorina her job. This big bet failed to come close to attaining what Fiorina and HP's board promised. "At bottom," Fortune magazine concluded, "they made a huge error in asserting that the merger of two losing computer operations would produce a financially fit model."

It takes the passage of time to determine whether a merger can be labeled a true winner. So let's examine the outcomes of some of the largest software mergers.

In 1994, Sybase purchased Powersoft. The $943 million software merger was the second-largest ever. However, the Powersoft merger interfered with Sybase's focus, and the company floundered financially. A Gartner analyst said at the time: "Sybase has lost focus as a database player. Their major issue is choosing an identity as a database or tools provider."

In 2003, PeopleSoft paid $1.75 billion for J.D. Edwards. PeopleSoft CEO Craig Conway said of the acquisition, "The powerful combination of PeopleSoft and J.D. Edwards creates the second-largest enterprise applications software company in the world." Now that the dust has settled and PeopleSoft has been acquired by Oracle (Conway was fired in the process), I am sure that many J.D. Edwards customers and employees wish the original acquisition had never occurred.

The reality is that while I can name 10 less-than-successful mergers off the top of my head, I cannot name a single stunning success. In many mergers, senior management profited while employees suffered layoffs; in others, investors received short-term windfalls while customers experienced long-term hardships. I cannot think of one instance in which investors, customers, employees and senior management all won.

Only time will tell whether the Oracle-Siebel merger is a destroyer, a loser, or--defying all odds--a winner.

Biography
Steve W. Martin is author of "The Real Story of Informix Software and Phil White: Lessons in Business and Leadership for the Executive Team."

More Perspectives

[ejevo]

The premise is right, but the supporting evidence ain't

I don't think you should throw in items that don't necessarily relate to each other. The Informix merger doesn't mean that a merger will lead to jail time. Fiorina was destined for disaster with or without the Compaq merger - it just helped to magnify her lack of qualifications for the job and bring her to her natural end a bit quicker. And whether JDE wanted to get picked up by PeopleSoft or not is besides the point - the real test is whether it is benefitting the customers and/or stockholders. That remains to be played out.

[dcongrav]

Mergers:reconcentration of wealth

If you can't think of a single merger that was successful or made sense, you are not alone. Whether in the Tech industry or without, mergers generally concentrate wealth in few hands, reduce competition and consequently choice, increase costs for the customers and concentrate ownership (wealth) in fewer hands. I'm probably wrong but I believe that we're coming full circle to a new feudalism.

[pencoyd]

Common knowledge is not

When the author write "It's common knowledge that most high-tech acquisitions fail to live up to their promises." he's forgetting that "common knowledge" is uncommon. And clearly not believed by executives at the various software companies.

Hmmm...

[rhyssleary]

If you keep rolling the dice, you will eventually lose

That doesn't mean that you throw up your hands and do nothing to improve your situation.

It's not the loss that matters, it's the winning. Follow the money my mentor once told me. To which I added, "Take the long view."

It seems to me that HP and Compaq were sincerely attempting to do better. So things didn't work out. That is of course a great over simplification, for there are many goals both public and private in these type of transactions, but I wouldn't know anything about that.

I dispute the author's premise that big technology mergers have produced no "stunning" success.

One need not look any further than HP. What does it stand for? Hewlett and Packard...formerly separate companies.

Let me think of another one...McDonnell and Douglas now a part of Boeing. If that doesn't suit your fancy, how about the Dey Time Register Company, Computing Scale Company of America and International Time Recording who all came together to become IBM.

Ultimately, you can tell one's outlook in life in what they say which leads me to my last rambling...

If you see only death, then you've missed life. Wouldn't you agree life is still worth living, despite the fact that we will all die in the end?

[dargon19888]

Martin still trying to flog his book?

Dude!

The mistake wasn't that Phil bought Illustra. It was that he under estimated the costs and efforts to bring Illustra in to the Informix product.

Phil wasn't man enough to take the heat and defend his purchase. Plus he was incented to keep the stock price high flying.

If you want to talk about mistakes, you have Finnochio, Dexmier and even Gyness to blame. Although PG was just following his original gameplan.

(Hint: Look at the name, then ask some of your Informix friends to see how to get a hold of me.


The problem isn't the megadeal itself. Its how the deals get justified and those forced to implement the merger with their existing staff and products.

Look at IBM's acquisitions of Lotus, Rational and Informix. (Again talk to some of your "friends".)

Sybase's purchase wasn't wrong. They just didn't spin the deal correctly, and they also didn't understand the ramifications of a single RDBMS vendor purchasing a hetero tool.

But hey, what do I know?

I sent Dexmier a chia pet and he never thanked me.