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However, if the merging companies compete in the same market, it would be fairer to claim that "It's like taking the number two and number three sprinters in th

However, if the merging companies compete in the same market, it would be fairer to claim that "It's like taking the number two and number three sprinters in the world, and having them run IN SERIES against the number one sprinter." (emphasis mine). Because number two and three companies merging to a new number one does in fact happen. (Note that this is the case here, though. No idea where Google is going with this.)

mumblemumble 7y ago
I don't know that that analogy follows, because agglomerations of thousands of people doing a complex task really aren't that comparable to two people doing one simple task. Taking one example I know of second-hand: My brother worked for the #2 company in his industry at the time they acquired #3 in an effort to overtake the market leader. It worked out disastrously. It turns out that #3, despite being the less profitable (and therefore less valuable) company, was also physically larger. Internally it had a lot of inefficient ways of doing things that resulted in them needing a lot more people to accomplish the same volume of work. You might think that #2 was then able to lean up #3 and make them more profitable, as part of the acquisition process. But it just isn't that simple - this was a large multinational with ossified internal procedures that were baked into the very infrastructure (both physical and IT) of the company. Things were never going to change overnight. So, instead, what happened was that, over the next 1-2 years, #3's culture got imposed on the employees from #2, by simple virtue of the #3 camp being twice as many people. So, in the years since then, the #1 company's market lead has consolidated into outright market dominance, as a result of their #2 competitor suddenly becoming no more competitive than their #3 competitor.
- derefr 7y ago
  > But it just isn't that simple - this was a large multinational with ossified internal procedures that were baked into the very infrastructure (both physical and IT) of the company. Things were never going to change overnight. I mean, it could have been that simple: #2 could have just entirely liquidated #3 and taken over their brands, marques, and physical assets like buildings, without retaining a single employee or officer of #3; or if they did keep the employees, it would just be by putting them into an "internal talent pool" where they're being paid to do nothing for a month or two, while they get filtered through #2's HR department as if they were new hires, either being placed in #2's structure or dropped. This would mean that #3 would be essentially erased from the marketplace at the moment of acquisition: no further revenues, but no costs either, all creditors paid off by #2, etc. #2, however, would also immediately be free of the effects of #3's competition on their bottom line, which might balance out that lack of #3-revenue for them quite well. Many customers previously using #3 would find that they had simply stopped communicating or delivering on their promises for a period—and if they were going to switch allegiances based on that, who better to switch to than their still-business-as-usual acquirer, #2? And, of course, presuming #2 already had logistics pipelines feeding the same markets as #3, and produced essentially-indistinguishable products from #3, it wouldn't take long to just start producing #2 products with #3 brands slapped on them and start sending them to their new base of #3 customers, to return things to normal. (But in the mean time, they'd have already received many of those customers as switchers to #2, without having to "fool" them with the #3 brand.) I believe this is the strategy employed by one of the big successful examples of M&A: Anheuser-Busch InBev. When the beer giant acquires another brewer, they don't keep them making beer; they just tear them apart, throw the acquired company away, and suddenly customers of MomNPop Beer Co. are drinking AB InBev beer in a MomNPop can. (They don't even keep the MomNPop brewery itself; there are economies of scale that make operating a bunch of small breweries silly compared to operating one huge megabrewery. They just strip it, sell the equipment for scrap—because otherwise they'd be encouraging someone to start another competitor!—and then sell or rent out the land, if owned.)
  - mumblemumble 7y ago
    > I mean, it could have been that simple: #2 could have just entirely liquidated #3 and taken over their brands, marques, and physical assets like buildings, without retaining a single employee or officer of #3 Oh my goodness. So, they would have bought this existing large multinational, with a huge existing client list, base of installed product, all sorts of SLAs and support contracts, all sorts of infrastructure for supporting all of that, etc, and immediately fired everyone who knows how to manage it all!?!?!? And what, then just immediately hire several thousand people to replace them 24 hours later, and have every single one of them up and running and productive in a jiffy? > This would mean that #3 would be essentially erased from the marketplace at the moment of acquisition Yep. . . followed by #2 being erased from the marketplace by lawsuits within a year or two.
    - derefr 7y ago
      > all sorts of SLAs and support contracts, all sorts of infrastructure for supporting all of that, etc We're talking about different verticals, here. Product businesses can get away with this. Service businesses probably can't. Even in service industries, though, there's a simple hack: when #2 acquires #3, they keep #3 running for a few months, but they make #3 push a change to the SLA, where service provided by #2 in lieu of service provided by #3 will be considered an acceptable service-level. They only begin liquidation of #3 once all #3 customers have signed onto the new SLA. Then, when the lights are turned off on #3's infra, all #3 customers are temporarily just provided with #2 services. Again, this is mostly a thing with product businesses, or, say, logistics providers, where the product/service is "pushed" to the customer by the provider, and the customer doesn't need to change how they do things, they just need to take receipt of the alternate product/service from the new provider for a while. "MomNPop beer is unavailable for a month, but here's a truckload of existing AB InBev 'indie-branded' stock to put in its place until we get our new marque spun up." This is less of a thing if we're talking about a "demand"-driven business, like, say, a SaaS API provider, where the customer has to communicate to #2 or #3 through an API, and they have different APIs. This can still be made to work, but it's all about how long the transition period takes. Google's purchase of Nest looked like this, with a transition period of two years. But it wasn't temporary; with a transition period like that, you may as well just shutter the #3 "API" entirely. (Example I can think of where this does happen in a service industry: cell-service MVNOs getting acquired by their own infrastructure provider. If ISP #3, an MVNO who uses ISP #2 as their network, gets bought by #2, there's nothing in #3 that #2 wants or needs, other than their customers, and maybe #3's brand value. So they just tell #3 customers that they're going to be #2 customers for a while (i.e. their phone will be "roaming" onto #2's network all the time, but they'll be charged regular #3 prices for it.) Either every customer from #3 is then pivoted into being a "real" #2 customer; or, if #2 keeps the #3 brand around, their #3 service starts working "normally" again a while later, as just a marque of #2 (if they stuck around with #3 instead of checking the box on their monthly bill that offers to switch them to #2.) > and immediately fired everyone who knows how to manage it all!?!?!? And what, then just immediately hire several thousand people to replace them 24 hours later, and have every single one of them up and running and productive in a jiffy? You don't hire the "new"-from-#3 employees to service the #3 accounts. #2 employees service the from-#3 accounts. #3 employees come in at the bottom, as if they were outreach hires. > followed by #2 being erased from the marketplace by lawsuits within a year or two. I mean, not if #2 doesn't own #3 when it liquidates, they don't. A company doesn't have to literally acquire another company; they can just pay it to commit suicide, and then pick up the pieces. Who do you sue, if your provider-of-choice #3 just decides to fold? Or, even more sneaky, #2 can just figure out a way to enter into some kind of financial arrangement with #3, where it then slowly squeezes #3 to death... and then picks up the pieces. (Do you know what happened to Target in Canada? Do you know why? Hint: all the land the Targets operated on was leased to them... by Walmart! And now, after Target set them up nice and neat, and then got squeezed out of the market, they are Walmarts.)
- volkk 7y ago
  Happened to a company I started working at. Long story short, I joined as an engineer when one 15 year old based company that was clearly still running like it was 1995 bought a lean tech startup with smart/focus people and proceeded to impose its really inefficient, old culture onto the newly acquired folk. Lots of clash, tons of shit talking, and people leaving left and right. The giant company ended up selling for basically nothing to another company because leadership had no direction and it was all a huge failure. A giant waste of a year of my life. Culture clash is very real, and it'd be interesting to study to figure out how potentially bad acquisitions/mergers can be predicted from other angles besides economic growth or "owning a larger portion of the market"
  - stickfigure 7y ago
    Just one year? That's a brief stint to learn a lot of valuable lessons about organizational behavior. And you probably have some great stories. It's easy to spend 3-5 years at a startup that implodes. One year is failing fast, and at least you got paid the whole time!
    - volkk 7y ago
      i rounded down, it was actually 1.5 years, but the stories i have are downright comical and belong in the silicon valley HBO show
      - filoleg 7y ago
        if it isn't too much effort, can you briefly jot down a few of your favorite ones? Just like, I bet, quite a few other people here, I am actually very curious to hear some of those.
        volkk 7y ago
        sure here's a comical one: we were a healthcare company so HIPAA was very prevalent, and so that entailed a locked office which further included either taking your laptop home, or locking it up in a drawer. there were plenty of people who would just leave the laptop on their desks when leaving to go home due to the fact that the office was locked; one day I come into the office and am met with a bunch of coworkers telling me that the CTO came in early today and found that the door was open and all of the laptops people had left lying around were outside in the hallway, stacked. nothing was stolen, but clearly someone had broken in. it made zero sense, and a different coworker said that she felt unsafe and that we should call the police. the CTO immediately said that that was unnecessary and that we should just be more cautious. a few hours later we found out that this was all a ploy/lesson to teach us to lock our laptops away, and that the CTO was the one that stacked them up outside. he was later asking whether he should resign because of this embarrassment. real michael scott shit. a non comical one: we needed to build a viable infrastructure and one of our smart engineers found that we could use a hipaa compliant service (aptible) as a fast way, and spend a bit more. however the ancient dudes wanted us to hire some third party consultancy to build out some crazy complicated AWS stack, and unfortunately that was what we ended up doing because hierarchy. the project was being led by a person who wasnt an engineer, and surprise surprise, we were also locked into some crazy contract where regardless of the work they did, we still had to pay them an insane amount of money per month. the project dragged and dragged, and ultimately didnt work out. we had some half assed/half done AWS stack that no one knew how to deal with so NOW we had to hire an infrastructure dude to finish/manage it inhouse. so we hire this "hotshot" who turned out to be literally a money dump as well, and would show up to work about 45% of the time. no one knew what he did. it took him like 7 months to get that other project to SOMEWHAT work. he was getting paid i think like 200k to sit around and really do absolutely nothing. i was also convinced he was addicted to drugs on the side based on his manners when he actually managed to show up to work. by the time i had left, that AWS project was still incomplete and im positive that anyone with half a brain/aws experience could have built that stack in a month and a half. and then of course there was the day to day of trying to get information from the acquiring company's employees and trying to cut the red tape of actually getting shit done, but they were very clearly used to bureaucracy type of work environment where every decision took ages, and some people were offended by the most minor things when we attempted to speed things along.
- soluvio 7y ago
  Is this Thomson merging with Reuters to take on Bloomberg? Everything you describe here sounds like it.
  - ckastner 7y ago
    I didn't have a specific example in mind, but I believe your example works. I was mainly thinking, in general, of industries that have experienced significant consolidation.

mumblemumble 7y ago

I don't know that that analogy follows, because agglomerations of thousands of people doing a complex task really aren't that comparable to two people doing one simple task. Taking one example I know of second-hand: My brother worked for the #2 company in his industry at the time they acquired #3 in an effort to overtake the market leader. It worked out disastrously. It turns out that #3, despite being the less profitable (and therefore less valuable) company, was also physically larger. Internally it had a lot of inefficient ways of doing things that resulted in them needing a lot more people to accomplish the same volume of work. You might think that #2 was then able to lean up #3 and make them more profitable, as part of the acquisition process. But it just isn't that simple - this was a large multinational with ossified internal procedures that were baked into the very infrastructure (both physical and IT) of the company. Things were never going to change overnight. So, instead, what happened was that, over the next 1-2 years, #3's culture got imposed on the employees from #2, by simple virtue of the #3 camp being twice as many people. So, in the years since then, the #1 company's market lead has consolidated into outright market dominance, as a result of their #2 competitor suddenly becoming no more competitive than their #3 competitor.

derefr 7y ago
> But it just isn't that simple - this was a large multinational with ossified internal procedures that were baked into the very infrastructure (both physical and IT) of the company. Things were never going to change overnight. I mean, it could have been that simple: #2 could have just entirely liquidated #3 and taken over their brands, marques, and physical assets like buildings, without retaining a single employee or officer of #3; or if they did keep the employees, it would just be by putting them into an "internal talent pool" where they're being paid to do nothing for a month or two, while they get filtered through #2's HR department as if they were new hires, either being placed in #2's structure or dropped. This would mean that #3 would be essentially erased from the marketplace at the moment of acquisition: no further revenues, but no costs either, all creditors paid off by #2, etc. #2, however, would also immediately be free of the effects of #3's competition on their bottom line, which might balance out that lack of #3-revenue for them quite well. Many customers previously using #3 would find that they had simply stopped communicating or delivering on their promises for a period—and if they were going to switch allegiances based on that, who better to switch to than their still-business-as-usual acquirer, #2? And, of course, presuming #2 already had logistics pipelines feeding the same markets as #3, and produced essentially-indistinguishable products from #3, it wouldn't take long to just start producing #2 products with #3 brands slapped on them and start sending them to their new base of #3 customers, to return things to normal. (But in the mean time, they'd have already received many of those customers as switchers to #2, without having to "fool" them with the #3 brand.) I believe this is the strategy employed by one of the big successful examples of M&A: Anheuser-Busch InBev. When the beer giant acquires another brewer, they don't keep them making beer; they just tear them apart, throw the acquired company away, and suddenly customers of MomNPop Beer Co. are drinking AB InBev beer in a MomNPop can. (They don't even keep the MomNPop brewery itself; there are economies of scale that make operating a bunch of small breweries silly compared to operating one huge megabrewery. They just strip it, sell the equipment for scrap—because otherwise they'd be encouraging someone to start another competitor!—and then sell or rent out the land, if owned.)
- mumblemumble 7y ago
  > I mean, it could have been that simple: #2 could have just entirely liquidated #3 and taken over their brands, marques, and physical assets like buildings, without retaining a single employee or officer of #3 Oh my goodness. So, they would have bought this existing large multinational, with a huge existing client list, base of installed product, all sorts of SLAs and support contracts, all sorts of infrastructure for supporting all of that, etc, and immediately fired everyone who knows how to manage it all!?!?!? And what, then just immediately hire several thousand people to replace them 24 hours later, and have every single one of them up and running and productive in a jiffy? > This would mean that #3 would be essentially erased from the marketplace at the moment of acquisition Yep. . . followed by #2 being erased from the marketplace by lawsuits within a year or two.
  - derefr 7y ago
    > all sorts of SLAs and support contracts, all sorts of infrastructure for supporting all of that, etc We're talking about different verticals, here. Product businesses can get away with this. Service businesses probably can't. Even in service industries, though, there's a simple hack: when #2 acquires #3, they keep #3 running for a few months, but they make #3 push a change to the SLA, where service provided by #2 in lieu of service provided by #3 will be considered an acceptable service-level. They only begin liquidation of #3 once all #3 customers have signed onto the new SLA. Then, when the lights are turned off on #3's infra, all #3 customers are temporarily just provided with #2 services. Again, this is mostly a thing with product businesses, or, say, logistics providers, where the product/service is "pushed" to the customer by the provider, and the customer doesn't need to change how they do things, they just need to take receipt of the alternate product/service from the new provider for a while. "MomNPop beer is unavailable for a month, but here's a truckload of existing AB InBev 'indie-branded' stock to put in its place until we get our new marque spun up." This is less of a thing if we're talking about a "demand"-driven business, like, say, a SaaS API provider, where the customer has to communicate to #2 or #3 through an API, and they have different APIs. This can still be made to work, but it's all about how long the transition period takes. Google's purchase of Nest looked like this, with a transition period of two years. But it wasn't temporary; with a transition period like that, you may as well just shutter the #3 "API" entirely. (Example I can think of where this does happen in a service industry: cell-service MVNOs getting acquired by their own infrastructure provider. If ISP #3, an MVNO who uses ISP #2 as their network, gets bought by #2, there's nothing in #3 that #2 wants or needs, other than their customers, and maybe #3's brand value. So they just tell #3 customers that they're going to be #2 customers for a while (i.e. their phone will be "roaming" onto #2's network all the time, but they'll be charged regular #3 prices for it.) Either every customer from #3 is then pivoted into being a "real" #2 customer; or, if #2 keeps the #3 brand around, their #3 service starts working "normally" again a while later, as just a marque of #2 (if they stuck around with #3 instead of checking the box on their monthly bill that offers to switch them to #2.) > and immediately fired everyone who knows how to manage it all!?!?!? And what, then just immediately hire several thousand people to replace them 24 hours later, and have every single one of them up and running and productive in a jiffy? You don't hire the "new"-from-#3 employees to service the #3 accounts. #2 employees service the from-#3 accounts. #3 employees come in at the bottom, as if they were outreach hires. > followed by #2 being erased from the marketplace by lawsuits within a year or two. I mean, not if #2 doesn't own #3 when it liquidates, they don't. A company doesn't have to literally acquire another company; they can just pay it to commit suicide, and then pick up the pieces. Who do you sue, if your provider-of-choice #3 just decides to fold? Or, even more sneaky, #2 can just figure out a way to enter into some kind of financial arrangement with #3, where it then slowly squeezes #3 to death... and then picks up the pieces. (Do you know what happened to Target in Canada? Do you know why? Hint: all the land the Targets operated on was leased to them... by Walmart! And now, after Target set them up nice and neat, and then got squeezed out of the market, they are Walmarts.)
volkk 7y ago
Happened to a company I started working at. Long story short, I joined as an engineer when one 15 year old based company that was clearly still running like it was 1995 bought a lean tech startup with smart/focus people and proceeded to impose its really inefficient, old culture onto the newly acquired folk. Lots of clash, tons of shit talking, and people leaving left and right. The giant company ended up selling for basically nothing to another company because leadership had no direction and it was all a huge failure. A giant waste of a year of my life. Culture clash is very real, and it'd be interesting to study to figure out how potentially bad acquisitions/mergers can be predicted from other angles besides economic growth or "owning a larger portion of the market"
- stickfigure 7y ago
  Just one year? That's a brief stint to learn a lot of valuable lessons about organizational behavior. And you probably have some great stories. It's easy to spend 3-5 years at a startup that implodes. One year is failing fast, and at least you got paid the whole time!
  - volkk 7y ago
    i rounded down, it was actually 1.5 years, but the stories i have are downright comical and belong in the silicon valley HBO show
    - filoleg 7y ago
      if it isn't too much effort, can you briefly jot down a few of your favorite ones? Just like, I bet, quite a few other people here, I am actually very curious to hear some of those.
      - volkk 7y ago
        sure here's a comical one: we were a healthcare company so HIPAA was very prevalent, and so that entailed a locked office which further included either taking your laptop home, or locking it up in a drawer. there were plenty of people who would just leave the laptop on their desks when leaving to go home due to the fact that the office was locked; one day I come into the office and am met with a bunch of coworkers telling me that the CTO came in early today and found that the door was open and all of the laptops people had left lying around were outside in the hallway, stacked. nothing was stolen, but clearly someone had broken in. it made zero sense, and a different coworker said that she felt unsafe and that we should call the police. the CTO immediately said that that was unnecessary and that we should just be more cautious. a few hours later we found out that this was all a ploy/lesson to teach us to lock our laptops away, and that the CTO was the one that stacked them up outside. he was later asking whether he should resign because of this embarrassment. real michael scott shit. a non comical one: we needed to build a viable infrastructure and one of our smart engineers found that we could use a hipaa compliant service (aptible) as a fast way, and spend a bit more. however the ancient dudes wanted us to hire some third party consultancy to build out some crazy complicated AWS stack, and unfortunately that was what we ended up doing because hierarchy. the project was being led by a person who wasnt an engineer, and surprise surprise, we were also locked into some crazy contract where regardless of the work they did, we still had to pay them an insane amount of money per month. the project dragged and dragged, and ultimately didnt work out. we had some half assed/half done AWS stack that no one knew how to deal with so NOW we had to hire an infrastructure dude to finish/manage it inhouse. so we hire this "hotshot" who turned out to be literally a money dump as well, and would show up to work about 45% of the time. no one knew what he did. it took him like 7 months to get that other project to SOMEWHAT work. he was getting paid i think like 200k to sit around and really do absolutely nothing. i was also convinced he was addicted to drugs on the side based on his manners when he actually managed to show up to work. by the time i had left, that AWS project was still incomplete and im positive that anyone with half a brain/aws experience could have built that stack in a month and a half. and then of course there was the day to day of trying to get information from the acquiring company's employees and trying to cut the red tape of actually getting shit done, but they were very clearly used to bureaucracy type of work environment where every decision took ages, and some people were offended by the most minor things when we attempted to speed things along.
soluvio 7y ago
Is this Thomson merging with Reuters to take on Bloomberg? Everything you describe here sounds like it.
- ckastner 7y ago
  I didn't have a specific example in mind, but I believe your example works. I was mainly thinking, in general, of industries that have experienced significant consolidation.