Any Real 'Value' in Software M&A These Days?

Today's Wall Street Journal has an excellent article entitled As Software Firms Merge, Synergy Is Elusive. Conventional wisdom (and a popular quote) for the past 20+ years has been that 70% of all M&A activity 'fails', i.e. fails to ultimately deliver shareholder value. In the 90's my former firm CSC Index double-clicked on the statistic and found there were three fundamental reasons why M&A activity fails:

• Poor Intent - strategy to do the deal in the first place was flawed
• Poor Deal Making - terms of the deal were not ultimately favorable for the buyer, buyer overpaid, etc.
• Poor Post-Merger Integration - buyer and seller could not realize the efficiencies/synergies

The law of large numbers is certainly driving a lot of large tech buyers to continue buying; IBM, Oracle, SAP, Microsoft, Cisco and others need to continue to do big deals in part for solid top line revenue growth.

Takeaway: Our view is that large tech companies are failing to realize post-merger integration synergies. Ultimately CIOs will continue to deploy SaaS, open source and a myriad of other strategies as a means to avoid vendor lock in.

Author: Mark Zawacki