Acquisitions look good in theory, but reality is often quite different.
Now that the initial wave of analysis and comments on the proposed acquisition of National Semiconductor Corp. by Texas Instruments has crested, I thought I'd add my views to the next round of opinions. Will the acquisition be a success, a mistake, or mixed event?
Long story short: I don’t know, nor does anyone else know with high certainty. But I do have some perspectives on acquisitions in general, and high-tech ones in particular: I think that they are often less than successful, in most cases. Why? I have these reasons:
• During the period between the initial acquisition announcement and formal legal closing, the company to be acquired has difficulty maintaining internal momentum, despite assurances by both parties. Projects are put on hold, initiatives are slowed down, expenditures are frozen, and everyone becomes cautious.
In our very competitive industry and economy, going into a sleep or quiescent mode is like taking yourself out of the game to rest for a while—but the game doesn't stop.The official line is "for now, everything continues as it was" but that's never the reality.
• On the acquirer's side, management becomes pre-occupied at looking at the specifics of their soon-to be-acquiree. There are meetings, reviews, need for all sorts of numbers and analyses, and many other time-consuming activities that take away from the business fundamentals of identifying and developing products for the customers, and then delivering and supporting them.
Sometimes the acquiring company suffers almost as much as the acquired company, as the mechanics of integrating/slimming two companies, two product lines, two cultures, and two of everything consumes time, energy, and attention, while the real customers get pushed to the side.
• Everyone is afraid for their jobs. When reductions come—and they do—very good people who just happen to be in the wrong place at the wrong time are let go, some of whom contribute in subtle but vital ways to the "secret sauce" that produces winning products.
Although financial wizards think an acquisition or merger is a good opportunity to get rid of below-average performers or slackers, let's be honest: given today's lean-and-mean semiconductor companies, there are very, very few employees who are anything less than pretty good.
• Customers of course, are wary of counting on critical products from the company to be acquired. They rightly wonder if the vital component they put on their BOM will just happen to be one of those to be deleted from the combined roster, due to overlap with a product in the acquirer's portfolio. Who wants to take that chance?
• One of the rationales for these sorts of acquisitions is that the combined company will have even more sales/marketing presence and clout. Perhaps that's true when the acquired company is small, spread thin, in weak condition, or not well known.
But does anyone think that a company such as National Semiconductor is not already very well known and respected by design engineers and purchasing agents? That their sales force hasn’t reached into every nook almost as much as TI's has? I just don’t see it that way.
Don't get me wrong: Texas Instruments is a well-managed, aggressive company with lots of leading products, a deep and broad portfolio, and smart people, and which has invested serious amounts of money in process, fabs, product development, product support, and marketing. They are where they are through serious, hard work and commitment.
But it would be ironic if the TI/NSC acquisition backfired and ended up as a distracting situation for them, and allowed another analog/mixed-signal vendor to actually gain against the pairing. It wouldn’t be the first time that the time and energy devoted to working through the uncountable details of a merger or acquisition instead yielded to the law of unintended consequences, while looking just so great from a financial analyst 's perspective.♦