If you’ve got the infrastructure, the brand and the balance sheet, why wouldn’t you grow by acquisition, asks Dell’s Dave Johnson
2011 has been a big year for acquisitions within the information technology industry. From HP buying Autonomy, to Google buying Motorola, and Microsoft buying Skype, it seems that the tech giants of the world are scrambling over each other to get their hands on the most valuable intellectual property on the market.
But could the fashion for acquisitions be about more than just IP? In a book called The Granularity of Growth, produced by global management consulting firm McKinsey, the authors identified one common attribute among the companies that had led their industry for two successive decades: they were all very acquisitive.
This is perhaps surprising, given that it is generally accepted that around 70 percent of acquisitions do not yield shareholder value. This is often due to a lack of integration between the acquirer and the acquired – with regard to management culture, governance processes, or simply a failure to encourage and sustain innovation.
The fact remains, however, that those companies that outperform their competitors over a sustained period of time tend to be very acquisitive.
Dell grows through acquisitions
One IT company that has been putting a lot of effort into acquisitions over the past few years is Dell. Most recently, Dell bought Force10, a company that provides high-performance data centre networking. The purchase allows Dell to offer a complete in-house technology stack for the data centre, including servers, storage, services and networking.
Other notable purchases include storage company Compellent Technologies, which offers a virtualised storage platform, as well as a number of software and services companies, such as InSite One, Boomi, Scalent and Perot Systems.
Dell has carried out its own research into the M&A market, in response to the McKinsey report, focusing specifically on acquisitions by IT companies over the last 10 years. The research backed up McKinsey’s findings – that companies that were more acquisitive over the 10 year period outperformed the non-acquisitive companies by 50 percent.
According to Dave Johnson, Dell’s global head of corporate strategy, the process of acquiring is almost as important as the acquisition itself. In an interview with eWEEK Europe, Johnson said that as long as the acquired company fits in with the buyer’s corporate strategy, the integration should be relatively straight forward.
“Processing acquisitions is actually just applying all the different business processes that we’ve learned over a sustained period of time,” said Johnson. “They may be more concentrated and more comprehensive but they’re not really new skills.
“So as long as your acquisitions are aligned with a sustainable strategy, you can execute reasonably well on the transaction, and most importantly build a set of core integration practices that preserve the rationale behind why you acquired the company in the first place, then you can be quite successful.”
Johnson acknowledged that the 70 percent odds of failure were daunting – particularly in the current economic climate – but said that Dell has disciplines around the process to ensure that it outperforms that standard. “Having consistency eliminates volatility,” he said.
“In my 30 years in the tech industry, I have never been in a time like this. The promise of incredible productivity and daunting complexity,” said Johnson. “As a CIO, I’m being pressured to deliver, and the potential is there, but the risk is high.
“I kind of look at it this way. If you’ve built a company, you’ve got the infrastructure, you’ve got the brand, you’ve got the balance sheet and you’ve got the distribution; why would you limit yourself to just organically leveraging it?,” he added.
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