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High Tech Acquisitions - Is It A Good Idea Or Simply A Bad Strategy?
I was reading recently about the proposed merger between Storage Tek and Sun. Two main technology corporations, one making a comeback out of bankruptcy and the other stuck in a long slump, with several years of negative predictions about their company prospects.
I do not have sufficient solid knowledge on the situation to decide whether or not it is a good idea from a strategic point of view or not. What I do know is that it probably will fail.
If you are in a comparable circumstance and are seeking bankruptcy services, consult a professional. There are lots of ways an acquisition can turn out horribly. Do not let this be you and your business.
Product Integration: A software company "takes out" a competitor. They then invest the next 5 years attempting to integrate the two code bases. Or they kill one of the products, alienating the user base they just acquired.
Overlapping Brand names: The HP-Compaq merger is actually a very good example. HP paid a huge price for Compaq, and a lot of the value was within the Compaq brand. Did they need to have another brand and what have they done with it since the merger? This caused confusion as well as duplicitous expenditures.
Dueling Managements: This ends in an internal "struggle to the death" for control over the firm for the next year or two, while the remaining competitors run past.
Channel Conflict: Perhaps both firms have massive dealer networks with a lot of overlap. These issues may be a few of the toughest to manage. If performed poorly it's going to lead to huge, sudden revenue reductions.
Exit Method for the Target: If the acquired firm views the deal primarily as an opportunity to "cash out", there will probably be a mass exodus of key individuals, persons that you simply have to have for the acquisition to make sense.
I hope that this does not come off as extremely negative. It is only meant to caution. There are plenty of good scenarios that can lead to prosperous acquisitions.
Software businesses who look to buy to fill a hole in their product series or acquire technology to rapidly jump on an emerging market segment, for instance. These kinds of offers can make tremendous sense, if executed properly.
Once your problem has settled, consider investing in over-the-counter stocks like pink sheet stocks by exploring: nyse arca.
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