M&A in tech - and now the hard part
'The CEO is in town next week and was wondering if you would like to meet up.' These are the seductive words that many tech founders dream of. Do they want to buy me out? How much for? What Ferrari should I buy?
M&A is an established part of the tech sector. Many founders start a company with the express purpose of being bought out. And although the big players may have stepped back their M&A activity last year, their overall record of purchases (as can be seen in the CBInsights graph here) is strong.
It's easy to understand why these tech giants want to buy (although some of Marissa Mayer's purchases are hard to fathom). First, they can't build everything themselves. Second, tech talent is a finite resource, so it may not be the technology they're after, but the brains behind it.
But here's the rub. M&A may great in theory, but it is often rubbish in practice. A Harvard Business Review report earlier this year revealed that 70%-90% of the $2 trillion of M&A deals each year fail. That is not a good return in anyone's book.
Very often the reason for failure is a mismatch, not in technology, but in people. Because there are many, many ways that people can fall out. Founders go from being a big fish to perhaps a small minnow, which can be tough to take, and staff in the acquirer can feel threatened by the arrival of heralded talent. Then there are the arguments over resources, the deterioration of company culture, the general political infighting... the list is long.
That said, there are plenty of examples where M&A has worked well. For instance, as TechCrunch notes, Facebook’s purchase of Instagram, where it kept the product separate but lent engineering, recruiting, anti-spam, internationalisation, and advertising muscle, has been a success.
Yet with M&A in general leading to failure, an industry has emerged to help acquired companies be integrated into the new mothership. Tasman Consulting, recently bought by EY, is one such firm. Tasman helps the HR strategy and integration of the teams, thus smoothing what is always a challenging experience.
Acquisitions can be the answer, but they require a great deal of effort to make them work. With tech M&A showing no signs of disappearing, there will be room for companies like Tasman for many years to come.