Friday, August 08, 2008

Mergers and Acquisitions


I'm a huge skeptic of mergers and acquisitions. It seems rare for something good to actually happen when one company buys another.

My experience is observing service providers and computer/networking vendors who merge. The creative people who work in the companies can get completely distracted. (Witness the BellSouth BTAC when the AT&T purchase of BellSouth was announced). The companies purchased are sometimes run into the ground. (Witness DSS Online, SurfSouth, and the other service providers bought by Duro/Volaris). Investment money seems to act like a drug that relieves smart people of good sense. The vast sums of cash changing hands seem to promote a lot of wasteful spending.

Sometimes the newly larger company wants to transfer a promising project from one group to another. But experience shows that doesn't work. Fred Brooks (the Mythical Man Month author) has observed that technical development projects cannot be moved between groups. The receiving group always restarts the development.

Sometimes purchasing company wants to move the purchased people and their project to a different location. In Peopleware, Demarco and Lister note that it's hard to move creative-technical people.

My hunch is that M&A often happens because (a) the management people at the purchasing company are looking for some excitement and a challenge, and (b) the owners of the purchased company want cash for the stock they own. I can't fault either motivation.

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