Any Real 'Value' in Software M&A These Days?

Today's Wall Street Journal has an excellent article entitled As Software Firms Merge, Synergy Is Elusive.  Conventional wisdom (and a popular quote) for the past 20+ years has been that 70% of all M&A activity 'fails', i.e. fails to ultimately deliver shareholder value.  In the 90's my former firm CSC Index double-clicked on the statistic and found there were three fundamental reasons why M&A activity fails:

• Poor Intent - strategy to do the deal in the first place was flawed
• Poor Deal Making - terms of the deal were not ultimately favorable for the buyer, buyer overpaid, etc.
• Poor Post-Merger Integration - buyer and seller could not realize the efficiencies/synergies

The law of large numbers is certainly driving a lot of large tech buyers to continue buying; IBM, Oracle, SAP, Microsoft, Cisco and others need to continue to do big deals in part for solid top line revenue growth.

Takeaway: Our view is that large tech companies are failing to realize post-merger integration synergies.  Ultimately CIOs will continue to deploy SaaS, open source and a myriad of other strategies as a means to avoid vendor lock in.

Comments

[Nina Buik]

Probably not excluse to SW M&As. The past is evidence that gobbling up market share may not always be the best growth strategy. Companies are so focused today on their 'unique'cultures that when an M&A occurs productivity and innovation are at risk due to the cultural clash.