Considering my business card says “Technical Yahoo!” my blog has been very technology free. Today I am going to break that trend post my views about mergers and acquisitions.
Important notice: This post is not specific to Yahoo! which I personally think is one of the better run corporations in the US. Please do not lay me off 
I am not a fan of Corporate America, and that is a huge understatement. I could write a whole book on why I am such a rabid opponent. But since I might actually end up writing such a book, I am saving that material for later. Today I am only going to talk about mergers and acquisitions which is my 2nd pet hate in Corporate America, the 1st being inept CEO s who make millions for under-performance.
A merger or an acquisition is when a company buys out or merges with another independent company or a business to create single entity. This happens very often in the technology arena. Here are the top reasons why I am so against mergers and acquisitions.
1. Statistically, M&A’s almost always fail which should be a good enough reason enough to avoid them all-together. For every successful M&A (which is very rare), I can give 100 examples of the ones that failed.
2. M&A’s indicate laziness and lack of effort on the part of the management of the company that buys another company. It is like they say, “Fuck, why did we not think of that before? It is so great for our business. Well, since we didn’t think of this and these guys have built a decent business let us just buy them for a gazillion dollars. Who gives a shit if we overpay and cost our shareholders millions of dollars.”
3. The 3rd and the biggest reason why technology M&A’s fail is that it is very very hard to estimate the net worth of a technology company. And it is impossible to predict what the value of a business will be after 3 years. Things change way too fast. Deciding the value of a technology company for an acquisition is a crap shoot. Companies *routinely* overpay for acquisitions to the tune of 100s of millions of dollars.
4. Once a small company is bought out for a ridiculous price, there is very little incentive for the management and top talent of that company to stick around since they make tons of money on stock options. This means that in the best case they will quit right away and in the worst case they will stick around scratching their ass and working on their pet projects until they are laid off with a nice severance package. In either case, the buyer is screwed.
5. When companies with different cultures merge, achieving synergy becomes a HELL of a job. A lot of time that can be spent innovating is spent integrating. And even then, it is never perfect.
So here is my advice for the corporate management of any technology firm:
1. Get rid of your M&A division. Spend that budget on spying, literally spying for new idea. In a technology world, ideas are hard, implementations are usually easy.
2. Focus on innovation first, business later. Learn from Google.
3. The only time you should even consider an acquisition is when a company is in really early stages and can be bought cheaply (1-50 million range)
4. Focus on your core business. For everything else, partner and move on. For God’s sake, don’t fuckin’ buy stuff. Do not venture into areas that are not your expertise. Partner and move on. Write this down a a 100 times.
