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I have seen it all in my 30 years in the application software business. My first software business, ASE Services, was acquired by SSA as part of consolidating an affiliate/VAR network. The strategy was good and, post acquisition, I participated in acquiring others.But, the actual companies consolidated were mixed in results. Some thrived post acquisition (ASE doubled in two years), some faded into the wood work and were had to measure, and worst were the ones whose people left to form new companies doing what they did prior to being acquired. The devil is in the details, the people, the culture, the communication with customers and the management of the process of integration and leverage.
I participated in the roll up of companies to extend capabilities and solution footprint and in those cases, with good due diligence on technology fit, market fit, and strategy fit, these usually worked well.
The software junk heap plays for the sake of buying install base and cutting overlapping costs, where there is a consolidation similar and disparate products, usually work from a financial strategy perspective but often leave customers in the lurch due to cuts in R&D and a total dilution of resources and focus.
Companies consolidated up to gain perceived capabilities, (i.e. the recent acquisition by one public company of another private consolidation play for its RFID capability), can backfire completely. The private company itself recently acquired a small company who had extremely rudimentary RFID capability (according to a colleague I spoke with this week who was part of developing that RFID capability and is now with a leading RFID solution provider) and it appears that, if the public did more due dill., they would have found that out and spent a lot less. Instead they may now be faced with either spending much more now one either development of RFID or yet another acquisition - or be faced with very disappointed customers.
Some companies have been built with a financial strategy based on consolidating capabilities right from the get go. Take a look at Siebel. Started with a financial strategy, and a vision of "all customer touch points" and basically no solutions. They quickly acquired just about all the capabilities to fill out that vision, then cleaned it all up and grew like crazy. They were criticized by competitors who felt they had more elegant solutions, but look at who won the space during their reign.
Timing and where you are relative to others are also a factors. I was involved in the consolidation of PrimeResponse with Chordiant - which worked well to add capabilities - and to add complimentary geographic coverage - unfortunately it was timed at the bursting of the bubble so the value in market cap was not achieved long term. Executives, from PrimeResponse, had parachutes upon an event and made out pretty well. Not so sure about the others. Eyretel and Witness was another consolidation for similar reasons - the strategy was pretty successful for a few of the key stakeholders but the majority of option holders of Eyretel pretty much lost out completely. I have personally been pretty fortunate and made fairly sizable capital gains from nearly every transaction I have been involved with. It has brought a personal freedom that many people rarely achieve. In some cases it was also good for the rest of the staff, customers and investors etc. and in some cases it was not. (So where you sit in the arena, and when you make your move, makes a huge difference too.)
One thing consolidation often is not - is a panacea for all involved.
Paul Lavallee brings more than 30 years of extensive experience in the software & IT business. Mr. Lavallee has served as a director on several boards and advisory committees of both pre-IPO and publicly traded companies. For more information visit: www.venturefuel.com
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