If you can’t beat them, buy them.
That was the mantra of leading technology companies in the tech boom days of the 1990s, when innovation was moving at such a frantic forward pace that even industry leaders like Cisco couldn’t keep up with the latest advances. Faced with the prospect of falling behind the competition, top companies began buying up smaller firms -- and their promising, if untested, technologies -- to stay on the cutting edge.
For a while, the strategy seemed to be a good one, or at the very least, a popular one. Companies spent $3.5 trillion on acquisitions between 1992 and 2000, making those eight years the most active M&A period in history. Then the tech bubble burst and M&A activity came to a screeching halt. Acquisition leader Cisco, which purchased 70 companies between 1992 and 2000, bought just two in 2001. It became evident that while some purchases helped acquirers reap benefits, many failed to create the intended value. Wharton management professor Saikat Chaudhuri believes he knows why. His research is especially timely given the recent growth in M&A activity in the tech sector and other innovation-driven industries.
Companies who once were acquisition-crazy, says Chaudhuri, soon realized that while buying technologies was easy, making them pay off was not. Indeed, researchers looking at mergers and acquisitions in tech fields have acknowledged for years that the challenges of successful acquisitions are significant, as are the challenges of post-acquisition integration. Yet they have also suggested that the strategy of buying young companies with early-stage technologies in emerging markets is a good way of hedging against the possibility of missing out on major technological advances.
[continue]
Page 1 of 8
> >>