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High Tech Acquisitions - Would It Be Worthwhile Or Simply A Bad Strategy?
I was reading lately about the proposed merger involving Storage Tek and Sun. Two significant technology firms, one making a comeback from bankruptcy and the other stuck in a long slump, with several years of negative predictions about their business prospects.
I do not have sufficient solid information on the circumstance to determine whether or not it's a good idea from a strategic point of view or not. What I do know is that it probably will fail.
If you're in a comparable circumstance and are looking for bankruptcy services, consult an expert. There are plenty of ways an acquisition can turn out poorly. Don't let this be you and your business.
Product Integration: A software company "takes out" a competitor. They then spend the next 5 years attempting to integrate the two code bases. Or they eliminate one of the items, alienating the user base they recently acquired.
Overlapping Brand names: The HP-Compaq merger is a very good example. HP paid a huge price for Compaq, and much of the value was within the Compaq brand. Did they need to have another brand and what have they carried out with it since the merger? This brought on confusion as well as duplicitous expenses.
Dueling Managements: This ends up in an internal "struggle to the death" for control of the firm for the next year or two, while the remaining competitors run past.
Channel Conflict: Maybe both corporations have massive dealer networks having a lot of overlap. These concerns are usually a few of the toughest to manage. If done poorly it's going to lead to large, sudden revenue reductions.
Exit Method for the Target: If the acquired firm views the deal primarily as a chance to "cash out", there might be a mass exodus of key folks, men and women that you have to have for the acquisition to make sense.
I hope that this doesn't come off as extremely negative. It is only meant to caution. There are plenty of great scenarios that could result in profitable acquisitions.
Software companies who look to buy to fill a hole in their product series or acquire technology to quickly jump on an emerging market segment, for example. These kinds of offers can make tremendous sense, if executed effectively.
When your challenge has settled, consider investing in over-the-counter stocks such as pink sheet stocks by exploring: nyse arca.
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