The technology industry has loads of examples of mergers that fell flat, from Microsoft’s acquisition of Nokia’s phone business to Google’s buyout and sale two years later of Motorola Mobility.
The impact of a failed deal can reach Wall Street, where firms increasingly rely on big technology companies to help power their information-technology systems. As a result, banking executives are always nervous about the implications of mergers and acquisitions on their businesses.
For example, when a large technology company makes an acquisition, there is always concern around whether the smaller firm will be able to maintain some level of independence, Laura Barrowman, chief technology officer at Credit Suisse, told Business Insider on Tuesday at the World Economic Forum in Davos, Switzerland.
One recent example is Red Hat’s $34 billion acquisition by IBM, in what is the biggest software deal ever. When IBM announced the deal, it said Red Hat would join IBM’s Hybrid Cloud team as a distinct unit, and it committed to allowing Red Hat to continue to contribute to open source development.
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But companies like Red Hat risk losing out on what has made them so appealing after being bought by large vendors, and Barrowman said IBM has traditionally integrated acquisitions.
“They have not got a good track record around that,” she said.
A representative for IBM declined to comment on Barrowman’s remarks, but pointed Business Insider to previous remarks made on an analyst call.
It’s a problem that exists across the industry and isn’t going away anytime soon. Large tech companies continue to look to acquire smaller startups they feel can complement their existing products or grow their market share.
As a result, clients need to be prepared for changes that could come as a result of M&A, Barrowman said.
“When you look at some of these small vendors, some of their concepts are brilliant,” she said. “But when you get it working to a point where it is working and you become reliant on it, they get bought out.”
Some tech giants recognize they need to allow companies they buy to continue doing what worked so well for them in the past. Microsoft acquired LinkedIn in 2016 and GitHub in 2018, but chose to allow both to operate as independent subsidiaries with their own CEOs. Cisco did the same after purchasing wireless-networking startup Meraki in 2012.
Barrowman said Dell’s $67 billion deal for EMC in 2015 is another example of a deal she initially had some concerns about. Credit Suisse was a client of EMC at the time.
Barrowman made it clear that despite any organizational changes that might occur from the deal, it should remain business as usual for the Swiss bank’s relationship with the software company, a request Dell obliged.
Barrowman added that the Dell-EMC deal was “the best thing ever,” and an example of an acquisition that worked for all sides.