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Article by Mohan Babu


Big M&As on the horizon

When a big company acquires a smaller one and phases out the latter’s products, what happens to the IT professionals specialising in that technology? MOHAN BABU explains why it is necessary for these techies to read the writing on the wall

In a fortnight of high-tech acquisitions, PeopleSoft first announced that it was buying Denver-based J D Edwards, and then came news that Oracle was bidding about $5.1 billion for PeolpleSoft, reminding me of the advertisement where a large fish gobbles up a smaller one only to be pursued by a bigger shark! In a way, this was already prophesied by Larry Ellison recently when he predicted the shrinkage of the software industry and failure of about a thousand companies. (Remember my recent column on his vision titled Larryspeak: And a thousand companies will fail...?) People hearing him speak thus were probably not ready for the fact that Oracle itself would be in the market for such a big target. But with the benefit of hindsight, we could perhaps see it coming. And industry gurus are predicting that there is more to come.

A tech slowdown notwithstanding, Mergers and Acquisitions (M&A)—whereby companies after growing for a while, expand their reach by acquiring rivals, competitors or anyone else who can provide them with expected growth—have started with greater vigour. Companies in the field of technology are especially ripe for M&A because most players, even larger ones, cannot develop innovative products and solutions in all the emerging areas. When a small, nimble player develops a product or innovative solution that complements the offerings of a big player, it is immediately acquired. Microsoft has grown by leaps and bounds, in large measure through its strategy of ruthlessly (strong word?!) pursuing smaller rivals and either re-creating their offerings or acquiring them.

Interestingly, even before and during the boom, Cisco had made acquiring companies a well structured process, gaining the awe of business leaders and ending up as case studies in business schools. Cisco had a band of M&A specialists in the company whose only job was to move from project to project, ensuring that the acquired companies were merged into the Cisco way of doing business with the least possible disruption. Hewlett-Packard’s turn-of-the-century merger with Compaq is another classic success story, attributed in no small part to CEO Carly Fiorina’s aggressive take-no-prisoners management style. She fought huge battles in first trying to spin off Agilent and then acquiring Compaq, making the “new HP” a strong contender to IBM’s leadership position in the global marketplace.

Even with all the positives about M&A, most mergers are doomed to fail. Most of the time, mergers take place because of a business leader’s gut instinct about the marketplace; or the leader’s urge to keep up with competition. Of course this mindset is like questioning: Because Wipro acquired Spectramind and TCS acquired CMC, Infosys should be in the market for an acquisition. Should it be so? Common business sense would dictate that strategy (even M&A) is not a one-size-fits-all tool. There are some that intuitively make sense and help propel organisations that are merging to bigger heights and others that just don’t cut it.

According to research by Weekly Corporate Growth Report, 70 percent of mergers fail to achieve their anticipated value. And they fail for a variety of reasons. Either it is a mismatch of corporate cultures, wrongly predicting growth, changing marketplace, management tussles or governmental intervention. There are several examples where acquisitions made perfect business sense but the government(s) in the US and Europe stepped in and refused to ratify the acquisition fearing creation of a monopoly. Imagine IBM trying to merge with either HP or Microsoft. Even (hypothetically) assuming that Bill Gates would consider such a move, it would be shot down in an instant.

Now, getting down to the nuts and bolts, what does an acquisition mean to techies in the field working on J D Edwards, Oracle Apps or PeopleSoft? In the short run, the news of such mergers hardly has any impact (unless one also happens to be employed by Oracle et al, in which case it would mean uncertainty, changing job roles, etc, etc). To the users and legions of techies supporting the products, long-term impact of such M&A is of more significance. For instance, we should set the clock back a few years when IBM acquired Informix—then a large player in the database arena with hundreds of thousands of developers, marketers, consultants, etc. IBM’s strategy was simple: Acquire Informix and eventually phase it out so that the DB2 family of products would reign supreme. As the first move, they stopped selling new licenses of the product and stopped work on newer versions and started weaning Informix shops towards DB2. Where is Informix now, and more importantly, where are the Informix “gurus”? They probably saw the writing on the wall and switched to DB2, Oracle or SQL Server.

If I were a J D Edwards and/or PeopleSoft developer, I would start thinking of this as a strategic inflexion point in my career. The same would hold were I managing a consultancy or group providing support for these products. As the Microsoft slogan goes: Where do you want to go today?





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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