September 27, 2016

Avoiding technology mismatches in a merger

Not all technology mergers are destined for success.

Technology mergers and acquisitions are a big part of the economy. In a press release, Dealogic recently announced that the tech world is seeing the greatest amount of notable merger activity. Citing this source, The Wall Street Journal reported that this industry has seen around $260 billion around the world in 2016 alone, and that was just as of June 13. With so much energy surrounding mergers in this sector, participants still need to remember the importance of finding a good merger partner.

Innovation can be a strong motivator for tech acquisitions, but it won't resolve cultural issues or guarantee a good fit. ZDNet recently chronicled several examples of what it deemed the "worst tech mergers" in the industry. Some of these include partnerships that only seem to be worth the cost of acquisition, but actually turned out to be detrimental.

One example in the article is Facebook's buyout of Instagram. ZDNet said that the social network may have saved money by developing its own photo service instead of purchasing the latter for $1 billion, especially since Instagram remains a separate app.

On the other hand, the source also references Microsoft's 2008 purchase of Danger Inc, a mobile software company that was supposed to help it develop a new mobile option. Unfortunately, the latter company suffered a data loss leading to the upcoming project's cancelation, just two years after the acquisition. 

Understanding this, companies should note that it takes multiple factors to make a technology acquisition go smoothly for both partners. Ideally, the best deal will focus on the companies themselves, not just the targeted assets, even if those are the primary reason for the deal to take place.