Well then, why?
Couple days ago I heard a surprising assertion on some radio program, maybe BBC. I was working on graphics at the time and didn't stop to think about it.

Assertion: Mergers are almost always a bad idea. Most of the time the two companies would do better on their own.

Never heard that before. Certainly true of all the mergers I've seen directly as employee or customer, but my experience tends to be atypical. If this is a general rule, why do companies keep doing it?

Leaving aside LBOs which are MEANT to destroy the target, why does company X want to buy company Y?

Three reasons.

(1) X sees Y as prosperous and successful, and wants to get some.

(2) X sees Y as failing because of bad management, and thinks X could manage it better.

(3) Y is not really a company. Y is a patent packaged as a company, and X wants the patent.

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(1) and (2) are clear recipes for failure, with occasional exceptions in (2). If Y is doing well under its current management, it will do worse after X fires its current management. If Y is doing poorly, there are usually problems other than management, and changing management won't solve those problems.

(3) is a modern phenomenon. Patents no longer protect new ideas. Patents only serve to stifle new ideas. A patent troll writes a patent on "existence" or "things made of substance" or "doing business", and then sues** everyone (with deep pockets) who exists or makes things or does business. The best way to protect a real idea is to form a company that can exert NDA pressure on its employees. Use the real idea to make something for a while, always shaping your publicity and style toward getting bought by Google or Apple or Pfizer. Get bought, take the money and run, after CAREFULLY insuring that the real inventor will get exactly nothing for the idea.

Mergers formed by (3) tend to work some of the time, but they aren't real mergers between two real companies.

The question remains. Why do mergers happen if the odds are so bad?

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**Footnote: The perfect troll-patent would be a patent on "having great wealth and having a firm policy of settling lawsuits instead of fighting them." Guaranteed to succeed every time. I'm sure the trolls are working on this as we speak.

Labels: Asked and unanswered

  ¶ 5:03 AM