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I'm really curious if there are some good academic studies on the incentives for execs to take on large, "marriage of behemoths" tech acquisitions. Given that s

I'm really curious if there are some good academic studies on the incentives for execs to take on large, "marriage of behemoths" tech acquisitions. Given that so often, perhaps a majority of the time, the end result is just a destruction of value, I'm curious as to why these are entered into so frequently. Perhaps it's a case of "90% of them are destructive but the 10% winners are huge winners"?

tw04 3y ago
In the case of Broadcom they actively seek technologies that are extremely difficult to pull out of large organizations. Then they make their money back by gutting all sales staff and r&d and jacking up prices for everything. They believe they can make their money back and then some off the Fortune 500 and they’ve bet correctly almost every time. Horrible way of doing business, not sure why it’s allowed, but it works. Just barely better than corporate raiders.
- SahAssar 3y ago
  Getting back a 69$ billion price tag that way seems optimistic, but maybe I'm just pessimistic about the cash to be gained by being entrenched in large corporations. Either way it does not feel like this strategy will open new lines of revenue for them.
  - tw04 3y ago
    >Getting back a 69$ billion price tag that way seems optimistic, but maybe I'm just pessimistic about the cash to be gained by being entrenched in large corporations. VMware had $13B in revenue in 2023. I expect the average customer's cost to double over the next 24 months - so put that at $26B doing nothing beyond increasing costs (and forcing customers into a subscription with products they don't need or want). Then cut all sales staff, R&D, and gut support. They will have paid off their investment in under 5 years. That's not even including the sale of end-user compute which is predicted to go for $4b. >Either way it does not feel like this strategy will open new lines of revenue for them. I guess that depends on what you mean by "opening up new lines of revenue". It is already opening up a subscription line of revenue they have not had previously - they've dumped all perpetual vmware licenses and are forcing everyone to subscriptions. If you mean taking the VMware product and adding new features to increase the revenue stream of the existing customer base via an expanded product: of course not. They aren't interested in improving the product, they are interested in milking every last penny out of it at the lowest possible overhead. Why do you think the ink was barely dry on the deal and they already killed ESXi free edition, and all perpetual licenses?
whaleofatw2022 3y ago
Ding ding ding! It's basically strip mining... All the folks at the top typically win on their options/etc, they don't care, they got paid.
toyg 3y ago
Nothing that refined. Execs do mergers simply because stock price go brrrrr, which is what their bonuses are about. When the projected gains will fail to materialize and the acquisition mismanagement will be laid bare, they'll be somewhere else anyway. Occasionally it's because the acquired company is really on its last leg, and they're trying to cash in by leaving some sucker to hold the bag. Also occasionally, because the acquiring company has been given a bunch of money and they have to show that they're serious about growth, so they'll just buy anything and anyone even tangentially related to their business. These are the sympathetic explanations. The unsympathetic ones involve security fraud and anticompetitive behavior; but, of course, those would be wrong for anyone to allege. No honest exec would ever accept under-the-table payments, or a promise of future windfall or lucrative job, to greenlight a takeover by a rival; we all know execs are honourable people.

tw04 3y ago

In the case of Broadcom they actively seek technologies that are extremely difficult to pull out of large organizations. Then they make their money back by gutting all sales staff and r&d and jacking up prices for everything. They believe they can make their money back and then some off the Fortune 500 and they’ve bet correctly almost every time. Horrible way of doing business, not sure why it’s allowed, but it works. Just barely better than corporate raiders.

SahAssar 3y ago
Getting back a 69$ billion price tag that way seems optimistic, but maybe I'm just pessimistic about the cash to be gained by being entrenched in large corporations. Either way it does not feel like this strategy will open new lines of revenue for them.
- tw04 3y ago
  >Getting back a 69$ billion price tag that way seems optimistic, but maybe I'm just pessimistic about the cash to be gained by being entrenched in large corporations. VMware had $13B in revenue in 2023. I expect the average customer's cost to double over the next 24 months - so put that at $26B doing nothing beyond increasing costs (and forcing customers into a subscription with products they don't need or want). Then cut all sales staff, R&D, and gut support. They will have paid off their investment in under 5 years. That's not even including the sale of end-user compute which is predicted to go for $4b. >Either way it does not feel like this strategy will open new lines of revenue for them. I guess that depends on what you mean by "opening up new lines of revenue". It is already opening up a subscription line of revenue they have not had previously - they've dumped all perpetual vmware licenses and are forcing everyone to subscriptions. If you mean taking the VMware product and adding new features to increase the revenue stream of the existing customer base via an expanded product: of course not. They aren't interested in improving the product, they are interested in milking every last penny out of it at the lowest possible overhead. Why do you think the ink was barely dry on the deal and they already killed ESXi free edition, and all perpetual licenses?

whaleofatw2022 3y ago

Ding ding ding! It's basically strip mining... All the folks at the top typically win on their options/etc, they don't care, they got paid.

toyg 3y ago

Nothing that refined. Execs do mergers simply because stock price go brrrrr, which is what their bonuses are about. When the projected gains will fail to materialize and the acquisition mismanagement will be laid bare, they'll be somewhere else anyway. Occasionally it's because the acquired company is really on its last leg, and they're trying to cash in by leaving some sucker to hold the bag. Also occasionally, because the acquiring company has been given a bunch of money and they have to show that they're serious about growth, so they'll just buy anything and anyone even tangentially related to their business. These are the sympathetic explanations. The unsympathetic ones involve security fraud and anticompetitive behavior; but, of course, those would be wrong for anyone to allege. No honest exec would ever accept under-the-table payments, or a promise of future windfall or lucrative job, to greenlight a takeover by a rival; we all know execs are honourable people.