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By my count, EMC (NYSE: EMC) has completed more than 40 acquisitions since 1993, with over half of them coming in the last four years. In contrast, NetApp (NASDAQ: NTAP), the company EMC bested in the takeover battlefor Data Domain (NASDAQ: DDUP), has done just five since 1997.
Acquisitions are difficult and require a unique skill set to succeed. The only way I know to gain that skill set is to hire a working team of people who have done a lot of recent acquisitions, or jump in and become an expert. EMC is one of — if not the — leading experts in IT company acquisitions. NetApp is not.
This gave EMC a substantial advantage in the fight over Data Domain, but it also gives the company a substantial advantage in what comes next: Integrating the firm and its technologies into the EMC family.
What generally happens when an inexperienced company pursues a merger or acquisition is that it hires a consulting firm to help build a plan to execute against. The consulting firm generally knows little about either company, even though it knows the mechanics of mergers. This is like bringing in a medical general practitioner to surgically combine parts from two patients he or she has never met.http://o1.qnsr.com/log/p.gif?;n=203;c=204655439;s=10655;x=7936;f=201806121855330;u=j;z=TIMESTAMP;a=20400368;e=i
Then the acquiring company moves into rapid execution mode. This generally consists of executives on both sides trying to protect and build empires with little regard for customers, revenue and an excessive focus on reducing costs, particularly if the costs come from a group that isn't in the decision loop (like the acquired company).
During this process, key employees often get disenfranchised and leave or act out, competitors treat the acquired company's customer base like a money buffet, and the value of the acquisition at the end of the process can drop to less than half of what it was at the beginning.
In short, an inexperienced company tends to focus on the wrong things: personal power, costs exclusive of revenues, and blame avoidance.
Why Experience Counts
By contrast, what generally happens when an experienced company pursues an acquisition?
First, the company creates a comprehensive list of assets it has acquired and then builds a plan designed to protect them. This plan will go through phases, beginning with rough drafts based on past similar acquisitions. The company will also pull from a knowledge base, in many cases both human and digital, that aggregates best practices (things that have worked) from prior mergers, as well as practices to avoid.
Experienced companies, too, often use consultants, but only to refine the plan, not build it. Unlike inexperienced companies, experienced ones will know which consultants are competent and which are not based on prior experience and references.
Rather than the execution of the merger being the primary focus, experienced companies understand the critical nature of planning. Paradoxically, this will allow them to execute more quickly than the inexperienced company because they will encounter fewer setbacks during the process, even though they will likely start formally bringing the companies together much later because of the longer planning cycle.
Other differences: There will be a huge initial focus to protect the key company assets, including customers, partners, top performing employees and working business structures. If any appear to be at risk, they are far more likely to respond quickly and proactively because of their focus on preserving valuable assets rather than simply getting the merger done. As a result, experienced companies should experience little customer erosion, and the employees they lose will largely be underperformers that prefer safe havens with competitors to integrating with top performers.
Turf decisions and compromises will largely be made by those that aren't directly involved so that the focus is on maintaining the business value rather than the protection of any one executive's empire. Early changes will likely focus on benefits to the larger entity, like volume purchasing, multi-national partner relationships and attaining more direct access to existing accounts.
One major issue that is virtually inevitable is sales force consolidation, which, even with experienced companies, can be difficult. Still, the experienced firm knows this and will be monitoring customer satisfaction closely to minimize potential damage.
In short, an experienced company focuses on customers, revenue, the identification and retention of key human and corporate assets and ensuring that the value of the acquisition is not only retained but enhanced.
From winning the Data Domain bid to the actual execution of the merger, EMC did — and should continue to — perform flawlessly. In part, this is because of their impressively vast experience, but it also reflects the company's historic focus on customer satisfaction, showcasing a textbook acquisition process. Job loss should be minimized, customers well cared for and competitive migrations minimized.
This is the advantage of experience and why it pays substantial dividends.
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