One of Wall Street’s most consistent tendencies through the years has been for companies that have reached a certain size to buy other companies in an attempt to goose their growth. The old saying goes that when you can’t get better, you get bigger. It makes sense. Rapidly-growing companies can book impressive year-over-year numbers while they are still small, but it becomes increasingly difficult to post double-digit gains in sales and earnings once you’ve become a billion-dollar enterprise. Looking outside your own business to major competitors (i.e. buying growth through increased market share) or to companies that are related but tangential to one’s own (i.e. buying vendors, partners, customers, etc.) are the two most common ways in which this is done.
しかし, history tells us that such steps are fraught with peril. Major acquisitions by mega-cap option bit stocks are usually overpriced and rarely go well for the acquiring company. Companies that have become very large have entrenched systems, personnel and mentalities that can be extremely difficult to modify, and it is common to see the merged entity rapidly lose highly experienced managers a year or two after the deal. There are numerous examples of this, but we’ll cite AOL’s merger with Time and Alcatel’s merger with Lucent as a two very good ones.
Google’s $12.5 billion decision to acquire Motorola’s mobility division, with which it works very closely on the Android mobile-phone operating system, is very telling in this regard. Having grown by leaps and bounds over the past five years primarily through search and advertising, Google’s management is under severe pressure to keep the elliottwave music playing. Frankly, the deal has one of the hallmarks of a potential disaster – Google is paying a massive, 63%, premium to gain control over Motorola’s jewel in the crown, even though the deal is the result of an exclusive process in which Google was the only buyer.
さらに, the deal puts Google squarely into a low-margin, high volume business that effectively puts it into competition with the 38+ other handset makers using Android, which is considered by many to be the best mobile OS. It has quietly amassed a dominant 43% of the mobile phone market, ahead of both Nokia and Apple, but it is generally considered poor form to directly compete with your customers. No amount of reassurance that Android licensing will still be managed by a “separate” division is going to placate rival firms who now see Google as a direct competitor.
Google has defended the acquisition in general and the price in particular by citing Motorola’s deep patent portfolio. There is some credibility to the claim, since owning the patents will provide a degree of legal protection from infringement lawsuits (as well as the legal standing to go after others), and there sure to be more than a few gee-whiz things in there that can be significantly monetized.
But the bottom line is that Google has grown up. It’s not the disruptive game-changing firm of 2005, but rather a very large, mature business with tons of cash that is buying innovation (this will be its 102nd acquisition). Steps like the Motorola acquisition and its recently launched Google+ social networking application suggest a me-too type of strategy, not the sort of thing that spawns sector-killer things like YouTube and Adsense.
In fact, Google now reminds us very much of Microsoft a few years ago. With lots of cash flow being generated from stable but slow-growing products like MS Office, Microsoft was long criticized for not acquiring growth through mergers, so it went out and snagged Skype in May in an ill-advised, non-core and overpriced acquisition that we feel will ultimately be seen as a major mistake.
Interestingly, Microsoft was quickly seen on Wall Street as a benefactor of the Google-Motorola deal. Not only does the acquisition instantly place other mobile OS makers, like Nokia and Research in Motion, on the block, but it may benefit the mobile Windows OS if, as mentioned, current Android partners defect. All told, Google’s move may look good on paper, but experience tells us that hindsight might deliver a different opinion.