5 ms·

I wonder if there are M&A statistics about how many times acquisitions not just fail (a well known problem), but fail because the market just "cools down." ---

I wonder if there are M&A statistics about how many times acquisitions not just fail (a well known problem), but fail because the market just "cools down." --- "Microsoft has pitched Yammer’s service–kind of a Facebook FB +5.18% for the workplace–as part of its bundle of document-and-email systems. Since the purchase, however, the white-hot market for such tools has cooled, a factor contributing to a shrinking stock-market valuation for rival Jive Software JIVE -0.39%." If one was able to predict that, then a build decision would be superior to a buy. Typically, those Corp Dev spreadsheets people work on so much when buying a company assume a certain growth rate for a number of years, and another one after that, etc. but I don't think people plan for the scenario that the "market dies" after acquisition. It would be kind of like predicting today that Docker-style containers would be abandoned in 2 years. Or that virtual reality would never pan out (Oculus). The problem is that when markets are hot, people see the lag as insurmountable and deciding for Build looks overwhelming.

akozak 12y ago
Out of curiosity, why do you think that's a problem?
- kinj28 12y ago
  so far we dont see any ESN, be it yammer or jive becoming a mainstream application. I think why ESNs havent been able to make a mark is because they arent designed for individuals or teams but they are designed for the enterprise. This approach of keeping an enterprise in the centre while designing the system doesnt address what an individual needs. In my experience, individuals work for a team & not enterprise & that according to me is a fundamental reason why the likes of yammer havent been as powerful as ideally they should be. Infact this problem was the start point for us while designing our tool teamgum - to build a reddit like community within an enterprise.
- hyperliner 12y ago
  I was calling a "problem" the situation where people see the market as "too hot" and then decide they don't have time to build a solution, choosing the "easy" path of M&A. I them see less engineering, more corp Dev driven decisions when the market is hot. If I knew the market was going to cool down, I could instead hire engineers and build a more realistic product that solves the specific problems that would survive the market transition.
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dave_sullivan 12y ago
Acquisitions are famous for a high failure rate, but so are companies in general. At every stage of a company's life, it faces significant existential risks. If you're lucky, the checks keep getting bigger, but the risk doesn't go away just because business is going well. Especially if business is going well... So assume every significant business decision carries pretty significant risk and the best you can do is manage that risk better than the next guy. Companies acquire other companies for a variety of reasons, some better than others. There aren't any hard rules either--a right decision in one scenario might be exactly the wrong decision in another. The build vs buy decision is a much more complicated question than it seems at first. All of that to say, I'd wager acquisition failure rate isn't all that far apart from general business failure rate or even the failure rate of a company doing a project internally vs buying a company.
- randomfool 12y ago
  Aside from the strategy failure case, I believe that Microsoft assumes that a large portion of the initial value will be lost in the first two years- 50% of the business is usually uninteresting to Microsoft and either shutdown or quite frequently re-sold, 50% of the employees either are not offered jobs with the transition, choose not to transition to MS, or leave quickly. Then very frequently a good chunk of the code needs to be re-written to get it working with the rest of Microsoft's stack. This doesn't mean that an acquisition is an automatic failure, just that it needs to drive more sales to become a success- either by direct sales or complementing other products. Know how to create a $200m business? Increase Windows sales by 1%. (steveb).

akozak 12y ago

Out of curiosity, why do you think that's a problem?

kinj28 12y ago
so far we dont see any ESN, be it yammer or jive becoming a mainstream application. I think why ESNs havent been able to make a mark is because they arent designed for individuals or teams but they are designed for the enterprise. This approach of keeping an enterprise in the centre while designing the system doesnt address what an individual needs. In my experience, individuals work for a team & not enterprise & that according to me is a fundamental reason why the likes of yammer havent been as powerful as ideally they should be. Infact this problem was the start point for us while designing our tool teamgum - to build a reddit like community within an enterprise.
hyperliner 12y ago
I was calling a "problem" the situation where people see the market as "too hot" and then decide they don't have time to build a solution, choosing the "easy" path of M&A. I them see less engineering, more corp Dev driven decisions when the market is hot. If I knew the market was going to cool down, I could instead hire engineers and build a more realistic product that solves the specific problems that would survive the market transition.

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dave_sullivan 12y ago

Acquisitions are famous for a high failure rate, but so are companies in general. At every stage of a company's life, it faces significant existential risks. If you're lucky, the checks keep getting bigger, but the risk doesn't go away just because business is going well. Especially if business is going well... So assume every significant business decision carries pretty significant risk and the best you can do is manage that risk better than the next guy. Companies acquire other companies for a variety of reasons, some better than others. There aren't any hard rules either--a right decision in one scenario might be exactly the wrong decision in another. The build vs buy decision is a much more complicated question than it seems at first. All of that to say, I'd wager acquisition failure rate isn't all that far apart from general business failure rate or even the failure rate of a company doing a project internally vs buying a company.

randomfool 12y ago
Aside from the strategy failure case, I believe that Microsoft assumes that a large portion of the initial value will be lost in the first two years- 50% of the business is usually uninteresting to Microsoft and either shutdown or quite frequently re-sold, 50% of the employees either are not offered jobs with the transition, choose not to transition to MS, or leave quickly. Then very frequently a good chunk of the code needs to be re-written to get it working with the rest of Microsoft's stack. This doesn't mean that an acquisition is an automatic failure, just that it needs to drive more sales to become a success- either by direct sales or complementing other products. Know how to create a $200m business? Increase Windows sales by 1%. (steveb).