Hacker News Reader

It's amazing to me how often this story repeats itself in tech, yet the results are almost always the same:

1. Old, hugely successful company needs to find new growth areas.

2. Company acquires company in high growth area (sometimes innovative, sometimes not)

3. Taking from the MBA playbook that higher investment equals more growth, acquired company is given aggressive targets but also a huge budget to meet them.

4. Company goes on a massive, usually relatively untargeted hiring spree, things become a major shitshow, acquired leadership team is eventually canned.

Instead of finding some realistic product targets and then setting a budget around what resources will be needed to attain those goals, the budget is allocated based solely on desired revenue and somehow hiring all these people without a clear plan will make that happen.

I'm genuinely curious, has this ever worked?

I think Google did it with YouTube if you want a B2C example but this has happened many times in the B2B world successfully.

Perhaps when the acquisition target is a smaller but fairly mature company who is being asked to scale existing processes. I think this is much more difficult for a startup when you’re essentially asking them to scale both their output and shrink their time to maturity by orders of magnitude.

Yeah, the cases where I've personally seen it work were when the company had product market fit but was money constrained for how much it could grow.

Survivor bias and all that. I wonder what the ratio is between

- bought and turned into success

- bought and integrated into the larger business

- bought and closed after running into the ground

- bought and then later spun off due to inability to create a successful business or integrate.

Not just for Google, but across IT as a whole.

The number I have heard (from maybe 15 years ago) is that "2/3 of corporate mergers meet their goals." That was across a range of industries. Tech in 2020 might be different, there is a certain kind of mindlessness around acquisitions that happens around technology sectors. For instance, AOL bought Time Warner, regretted it, AT&T bought Time Warner, now the vulture funds like Elliot Capital Management are circling and they will have the CEOs head.

AT&T's mistakes were made by people who were more technical than MBA, but it's a consistent trope that "Google bought Company A" and then Company B brings their salespeople to muster the next morning to inform them what's going to happen at Company A, and the next sales retreat is fistbumps all around.

I wonder if we could put a break on mergers and acquisitions, not for the sake of communities, workers, and competition, but just for the poor stockholders!

> "The number I have heard (from maybe 15 years ago) is that '2/3 of corporate mergers meet their goals.'"

my recollection is that it's closer to half. m&a deals tend to be executive vanity projects as often as sound strategy.

Again it depends. Look at Church & Dwight, more known as the Arm & Hammer company. Their strategy of expanding all over the grocery store cleaning isle seems to have worked as they have a whole team of brands and brands at different price premiums. They have bought smaller cpg companies successfully

yes, certainly there are successes, but it's good to realize that that's only about half of attempts. if you're an involved shareholder, it's eminently reasonable to be skeptical of executive strategies that feature m&a centrally.

And even with the half rate "successes" ( Success in terms that is actually defined by the executive themselves ), most of them were done with a miraculously talented team that normally has little to do with the executives.

Because in an ideal world you expect M&A to provide synergy, but it is often where 1+1 = 1.5 or less, and at best successes are 1+1 = 2. What people should be aiming for is 1+1 = 2.5 or more.

And recent Intel ( Post Andy Grove or Post Patrick Gelsinger ) has a track record of both poor strategic decision, acquisition and execution.

Note: That is M&A with respect to diversification.

yes, i refrained from using the word "synergy" because most people don't differentiate the common pejorative understanding and it's M&A usage.

it's a fascinating component of how companies are often overvalued in m&a activity.

Twitch into Amazon worked, but I do think its an exception. What you describe is a very high-level view of how things usually turn out.

From what I see in the B2B space, acquisitions are a major avenue for quick innovation. Large corporations buy smaller startup, do some integration into existing solutions and come out with a new product (If they don't just keep the new company as a separate costumer-facing identity (Look at NetApp + SolidFire, or the whole Dell-EMC conglomerate)

I'm so thankful that big corporations tend to be lumbering, clumsy giants like this - otherwise there wouldn't be room for any smaller companies, and we'd already be at the point where all the commerce in the world was owned by a handfull of megacorps (we might still get there).

Examples where it worked:

Youtube -> Google

Twitch -> Amazon

Instagram -> FB

WhatsApp -> FB

FriendFeed -> FB

LinkedIn -> Microsoft

Ring -> Amazon

Paypal -> Ebay (Well they didn't destroy it)

Flipkart -> Walmart

Github -> Microsoft

Moat -> Oracle

EMC -> Dell

Beats -> Apple

Nest -> Google (Debatable?)

Qualtraics -> SAP

Macromedia -> Adobe

Mulesoft -> Salesforce

Tableau -> Salesforce

Skype -> Microsoft

Redhat -> IBM

Kaggle -> Google

Metaweb -> Google

Probably others - these are just the ones I can think of off the top of my head.

But I didn't ask "when was there ever an acquisition of a small startup by a large incumbent that was successful?" I'm specifically thinking of when that small startup was then flooded with budget and people to meet aggressive growth targets.

I don't know about every item in your list, but I do know at least in some of those cases that the acquired company was largely left alone. They were perhaps given some integration goals, but the parent company specifically "left them alone" to not kill the secret sauce that made them successful in the first place.

>> So the message was "Get on and hire, because it won't be like this forever, and if you fail your hiring target, you'll be stuck delivering big projects with no staff".

Pay attention kids. There are times when a company is investing in the future. Do exactly that. Buy equipment that will be useful down the road because it won't last.

One place I worked had some awesome custom test stands for the product we were developing. I wondered how they ever came to be since money seemed tight and we actually had some layoffs. Development had been going on since years before I got there and they hadn't landed a customer yet. We rebooted the design for the 3rd time and did finally win. The business became very significant to the company. Sure, they let a small team keep trying but we never could have made it without that initial investment in equipment/infrastructure. Spend the money when it's available, but try to make it count.

The question is: What is the payoff for Intel from all these acquisitions? I've not see any that clearly were a net profit.

Mobileye: Paid $17B for it.

Altera: Paid $17B for it. At the time, Altera had a net profit of $0.5B. With something like $2B in assets, this will take 30 years to break even. How much growth are they expecting to offset that?

McAfee: Paid $8B for it, sold it for later. I'd love to see if they ever made back the amount they paid for it.

Nervana: They recently announced they're dropping the HW they produced. Time will tell if they can adapt the Nervana SW stack to the other ML company Intel just bought.

Infineon: Would love to see the numbers on whether they made a net profit on it. They may actually have with the sale to Apple.

WindRiver: Same question.

Yes, big companies should do some big bets. But bets are to make a net profit in the long run, with several failures along the way. With the amount Intel Capital has dumped in buying companies, and adding in the costs involved while holding them (employee salaries, capital expenses, etc), has Intel made money or lost money?

It's a bet on every car on the planet having an autonomous ai in some foreseeable future.

Which equals to usually three pieces of redundant silicon with high availability failover, functional safety on each, high computer power needs and hard real time requirements (translating to further companion acceleration silicon).

Intel would love that to be Intel instead of some arm, riscv, Nvidia, whathaveyou...

The global vehicle production is in the order of 100mio vehicles per year, and drive ai is a growth market.

Is invest the same if I were Intel.

Don't forget Havok (sold to Microsoft, presumably at a loss), Recon (shut down), and Lemoptix and Composyt Light Lab (combined into Vaunt and shut down).

Thank You for writing pretty much all I want to write.

>Infineon: Would love to see the numbers on whether they made a net profit on it. They may actually have with the sale to Apple.

Likely not. Intel paid $1.4B for Infineon, invested billions into it every year, could not catch up to Qualcomm. Finally got the Apple contract by reducing price. And when they did it took out many of their 14nm capacity that could have been better used for something else. The $20 per pieces also did not really cover their R&D as stated in the court case against Qualcomm. In the end Apple got most of their R&D for $1B, and had to force to sign a license with Qualcomm or faced with the possibility of Intel shutting down their Modem business and they are left with no modem for iPhone.

> doing a McAfee

Do you mean the person or the company? If you mean the person, this is going to pretty weird.

Intel was big into antivirus in the early 2010s and bought the company

https://en.wikipedia.org/wiki/McAfee#Acquisition_by_Intel_an...

at first they thought it would sell quad-core processors, but discriminating consumers learned that third-party antivirus makes your machine slow, unstable, hot and runs down the battery. Thus it damaged Intel's brand.

> at first they thought it would sell quad-core processors, but discriminating consumers learned that third-party antivirus makes your machine slow, unstable, hot and runs down the battery. Thus it damaged Intel's brand.

I don't get the anti-virus market at all. Granted all AV products are probably horrible and I haven't used a third party AV on a personal machine ever since about 2009-ish [0] but back in college I distinctly remember the consumer AV stuff was so much taxing on performance compared to "enterprise" stuff. I don't think there was ever a technical reason for this, was there? So, why?

Now I do remember subversion checkouts or anything file intensive was pretty bad (and it still is if you don't have a decent SSD) but my impression is that the enterprise av was better than consumer? Am I misremembering this?

[0] I think I switched to Microsoft Security Essentials or some variant of it if I recall correctly.

That would be down to how they do accusitions, it's not just what they are paying, it's also backedup with a plan and investment. So you get a couple of years of nice big budget and the expectations would be that it would yeild back within that period. Now if those expectations play out, not just the product doing as they expected, but also the customers buying into it as expected. Those two are sepeate beasts. So either the company lives up to expectations and everything aligns and carry's on, or it gets a restructuring, which can take many forms and can happen more than once.

But like anything new, gets fat marketing budget, then after that grace period runs out, they are expected to be self sufficient and yielding a return.

Then even if everything goes well, those expectations and returns will also grow and eventually things change.

But initially, the honeymoon period is always fun, bit like first year at university, then things start to get real, real fast.