Why the Big Players Keep Acquiring Cloudy Companies

MergersAcquisitions

Business Units (BUs) have insatiable desire to buy other companies.  Why is that? In this article, I’ll explore a few things motivating this phenomenon.

Having been on both sides I have a few observations that I hope can help shed some light on the backroom motivations at large companies. Let’s look at some of the reasons BUs are buying up companies in such speedy fashion.

Revenue Growth

BUs need to grow revenue at fantastic rates to support the increasing investment required by engineering, QA, support, marketing and the sales engine.  One sign of a healthy BU is its ability to unlock corporate balance sheets to acquire both technology tuck-ins and revenue producing emerging businesses.

These inorganic sources of growth can produce extraordinarily high growth rates.  If a BU’s revenue is not growing at a high rate, it loses the ability to part the millions or billions from the CFO’s balance sheet.  Lacking the ability to acquire can negatively impact growth trajectory.  This Catch 22 can either elevate or sink a BU.

Assertive Strategy Imperatives 

It’s critical for BUs to have assertive strategy imperatives.  A typical example is:  “We are in this large product space and in order to be number one or number two we need to acquire a company with product and go to market that fill these gaps”.

Beware of overarching aspirations!  You may find that you have forced your product and BU into a situation where you have to go big or go home.   It is much better to be pragmatic, or have a multi-year strategic imperative ramp.

Filling the Gaps

The intense desire to fill in product gaps will often trump deficiencies in the prospects technology, go-to-market or leadership team.

Issues After the Close

Once the deal is closed, what seems like a perfect fit for strategic product gaps, technology aggregation and team augmentation generates issues of a different sort over time. I have observed that acquired assets and products tend to align their roadmaps with what the acquirer sees as the strategic needs (see Assertive Strategy Imperatives).

While this keeps the business and strategic architects of the BU and the corporate HQ guys on plan together, over time this can diverge from what the market demands and the customers keep emphasizing at every customer advisory council meeting.  If you find your organization expending most of the strategic conversation and slide-ware on inside issues and the customer feedback is just a single slide in your phase review deck, beware of your defecting customer base.

Slow Integration

Acquisition integration can take much longer than anyone forecasts and can slow the velocity of innovation. Indeed, over time the new technology aligns more closely with the now dated acquisition plan. However, the market and customer have moved on to solving new problems.

New Problems

New problems or product areas permeate new strategic imperatives, thus causing the corporation to search for another company to acquire to fill those strategic gaps.

These six dynamics cause large companies to continue to acquire companies in the same area, but with updated product capabilities and twists.

How do we get out of this cycle?  My recommendation for product management is to balance new technology acquisitions roadmaps between the corporate compulsories (integrate with old product X or use internal technology Y) and stick very close to future market and customer needs with agile techniques.

Enjoyed this article? Read more insights from Wayne Greene on the From Chemistry to Clouds blog

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