High Tech Acquisitions - Is It Really Useful Or Perhaps A Bad Strategy?

I was reading recently about the proposed merger between Storage Tek and Sun. Two significant technology firms, one making a comeback out of bankruptcy and the other stuck in a long slump, with quite a few years of negative predictions about their company prospects.

I don't have sufficient solid knowledge on the scenario to determine whether or not it is a good idea from a strategic point of view or not. What I do know is that it almost certainly will fail.

If you are in a similar circumstance and are looking for bankruptcy services, consult a professional. There are plenty of ways an acquisition can turn out poorly. Do not let this be you and your business.

Product Integration: A software business "takes out" a competitor. They then invest the next five years attempting to integrate the two code bases. Or they eliminate one of the products, alienating the user base they recently acquired.

Overlapping Brand names: The HP-Compaq merger can be a very good example. HP paid an enormous price for Compaq, and a lot of the value was in the Compaq brand. Did they need to have another brand and what have they carried out with it since the merger? This caused confusion as well as duplicitous expenses.

Dueling Managements: This ends in an internal "struggle to the death" for power over the firm for the next year or two, while the remainder of the competitors run past.

Channel Conflict: Perhaps both companies have massive dealer networks with a lot of overlap. These problems are usually a few of the toughest to manage. If completed poorly it is going to result in huge, sudden revenue reductions.

Exit Strategy for the Target: If the acquired firm views the deal primarily as an opportunity to "cash out", there will likely be a mass exodus of key folks, men and women that you simply have to have for the acquisition to add up.

I hope that this does not come off as extremely negative. It's only meant to caution. There are plenty of great scenarios that may result in prosperous acquisitions.

Software businesses who look to buy to fill a hole in their product series or acquire technology to easily jump on an emerging market segment, for example. These types of offers can make tremendous sense, if executed correctly.

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