Embed from Getty Images
It seems as though the entire tech world is splitting up. HP announced they are splitting the Personal Systems Group into HP, Inc and the rest of the Enterprise group in HP Enterprise. Symantec is forming Veritas into a separate company as it focuses on security and leaves the backup and storage pieces to the new group. IBM completed the sale of their x86 server business to Lenovo. There are calls for EMC and Cisco to split as well. It’s like the entire tech world is breaking up right before the prom.
The Great Tech Reaving is a logical conclusion to the acquisition rush that has been going on throughout the industry for the past few years. Companies have been amassing smaller companies like trading cards. Some of the acquisitions have been strategic. Buying a company that focuses on a line of work similar to the one you are working on makes a lot of sense. For instance, EMC buying XtremIO to help bolster flash storage.
Other acquisitions look a bit strange. Cisco buying Flip Video. Yahoo buying Tumblr. There’s always talk around these left field mergers. Is the CEO looking for synergy? Is there a hidden play that we’re unaware of? Sometimes that kind of thinking pays off. Other times you end up with Zimbra. More often than not, the company ends up writing down the assets of the acquired company and taking very little from the purchase. Maybe not as big as the Autonomy write down, but even getting rid of Flip can make waves.
It makes a person wonder what the point of an acquisition is if it’s just going to wind up being an accounting charge later. Is it a tax shelter? A way to use up outstanding cash? Maybe even a way to buy a particularly good developer and fold them into your organization to keep them out of a competitor’s hands? The reasons are myriad but it appears that the fever is dying down. And that might end up hurting innovation in the long term.
This Is Not An Exit Strategy
Think about the startup out there making a hot new technology. They had their heart set on getting bought by a bigger company in the market. Now, they just watched that company split off half of their business into a new company. Cash is hard to find for a new acquisition. Now the startup has to find a different way to monetize things. Should we redouble our efforts to market the product? Get new investors? Go public?
I’ve said before that pinning your hopes on getting purchased isn’t the best way to run a business. It’s like betting all your hopes on getting the winning numbers in the lottery. It might happen, but the odds are against it. Perhaps the end result of a market full of split companies will be a reevaluation of the idea of an exit strategy. Rather than building a business for the sole purpose of being bought entrepreneurs will start building businesses to make products and sell them. It’s a radical idea, but not so radical as to be unbelievable. Just ask Hewlett and Packard. Or Jobs and Wozniak. Or anyone else that didn’t have an exit strategy instead of a business plan.
Companies can be too big. IBM has sold off most of what made it IBM. Symantec and HP are in the process. The next domino to fall will be EMC. Then Cisco. After that, the landscape will look much different. But in a good way. It’s like a stock split. The same amount of knowledge is out there. It’s just held differently. That’s good for the industry because it forces the status quo to change. New alliances, new partnerships, and new synergies can be found by upsetting the apple cart now and then.