Markets change, companies grow, others disappear and some are acquired. We have seen many such acquisitions in the Information and Communications Technology (ICT) community. Many acquisitions will affect growth and adoption within the unified communications market. We have seen:
- Avaya buy Nortel
- HP buy 3Com
- Cisco buy Tandberg
- Mitel buy Inter-Tel
- Aastra buy Ericsson and Intecom
- NEC buy Sphere
Why do vendor acquisitions occur?
There are many drivers that attract one company to buy another:
Increase customer base
An acquisition delivers existing customers. These now become the customers of the acquiring company, increasing its base and customer reach.
The acquisition increases the acquiring company's total revenue and therefore, in many cases, the stock value.
An acquisition decreases the competition and helps solidify the acquiring company's control of the market.
Gain new products
The acquired company may have products that will expand the acquiring company's product portfolio.
Expand geographic footprint
The acquired company may have a stronger presence in other parts of the global market. The acquired company may already have a good reputation in the new geographic region that will help the acquiring company expand in new markets.
Expand their image
The image of the acquired company may be required for the acquiring company to establish an expanded image in the market.
Good deal financially
The acquired company may be up for sale. The sale may offer a financially attractive purchase that would not otherwise be available.
Customers: It is important to note that these justifications for the company acquisition have little to do with benefiting you, the customer, except that the acquired company may have been near closure and bankruptcy. In the case of bankruptcy, the acquisition helps continue product support to customers of the acquired company for a longer period.
What may happen to the acquired vendor is the open question. Who buys them matters. Is it a public or privately held company? If public, the stock price may drive the decisions after the acquisition, and the decisions may be short term. A privately held buyer can afford to look at the longer view and may invest in the acquired company differently.
The acquired company staff is part of its assets. Some staff will be kept on through retention offers while duplicate staff will be terminated. There may also be resignations by key staff members. Cisco, for example, has a reputation for retaining staff in the acquired company. Another staff issue is the culture of the two companies. Remember the IBM-Rolm acquisition? It did not work out well. The IBM-Rolm concept worked well only on paper. Finally, some of the acquired company customers will look for other vendors. The acquiring company will benefit from gaining the acquired company's customers -- but not all of them.
A very negative result of an acquisition may be the sale of some of the acquired company's assets to pay, in part, for the acquisition. If these assets/products are those an enterprise depends on, then the customer will go through a second acquisition cycle, leading to more turmoil. In some cases, the acquiring company buys the technology, intellectual property and key employees and terminates the products.
The possible results for the enterprise are:
- The combined company will have greater financial strength, larger geographic coverage and an increased support staff.
- The acquired company's products may be retired within one to two years.
- The product support may be available for only three to four years, forcing the customer to migrate to new products.
- The customer may be given financial/rebate incentives to move to the acquiring company's products.
About the author:
Gary Audin has more than 40 years of computer, communications and security experience. He has planned, designed, specified, implemented and operated data, LAN and telephone networks. These have included local area, national and international networks as well as VoIP and IP convergent networks in the U.S., Canada, Europe, Australia and Asia.