The five that clicked

We count down five of the best (and worst) acquisitions in tech history, from AOL-Time Warner to Google-YouTube.

Tags: Google IncorporatedIBM Middle EastIntel CorporationLenovo GroupMergers and acquisitionsSun Microsystems IncorporationUSA
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The five that clicked
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By  Imthishan Giado Published  October 21, 2010

The technology industry is going through a wave of acquisition fever that harks back to the heady days of the dotcom boom, when companies paid billions over the market rate to fill “gaps” in their portfolio. While the world waits to see if they’ll avoid the mistakes of their predecessors, we take a walk down memory lane to look at the merger and acquisitions that did it right.

1. IBM, Lenovo (2004)
$ 1.75 billion

The facts

In the first half of this century, IBM was struggling to make headway in the cutthroat PC business. What was once the most famous name in the business had lost its way, losing the enterprise market to Dell and the consumer one to HP. Enter China’s previously-unknown Lenovo Group which had long been manufacturing IBM’s products. Unlike rivals Quanta and Compal to quote some, it was looking to make the big jump to the big leagues and took the manufacturing unit off Big Blue’s hands for a relatively bargain $1.75 billion. Many at time thought IBM was foolish to get out of the very business it had started, while Lenovo was an unknown quantity attaching itself to a still highly-regarded brand.

Why it worked

Time has proven the sale to be a wise choice for both parties. Lenovo’s smartly focused heavily on the enterprise space where its ThinkPad brand still has massive traction. Rather than try to out-innovate its competitors, it has concentrated on creating a portfolio of reliable, solid products. As has been well noted, stripped of the need to move boxes IBM’s gone from strength to strength, building a strong services and storage arm that’s put the shine back on the brand as an IT innovator.

2. EMC, VMWare (2003)
$ 635 million

The facts

When storage giant EMC picked up VMware for $635 million in 2003, few in the business even knew what virtualisation technology could do – and even fewer could certainly predict how it would completely up-end the enterprise industry paradigm over the course of the decade. Considering that the mood post dot-com boom was highly volatile, EMC’s decision to invest a significant amount of cash in a business seemed quite brave. But luckily, the hype wagon soon rolled around and tiny VMware became the centre of a movement that’s at the height of major datacentre investment today.

Why it worked

For EMC, it proved to be a perfect marriage of corporate governance and technology. It could now sell more boxes to customers with the assurance that enterprises could achieve far better efficiencies in the long run, while VMware gained a mighty corporate sponsor. VMware revenues topped $674 million in Q2 2010 and the company is today valued at some $33 billion, boasting a healthy balance sheet and strong management –CEO Paul Maritz is ex-Microsoft and EMC.

3. Intel, McAfee (2010)
$ 7.7 billion

The facts

It’s fair to say that this one took most of surprise when it happened in August this year. Chip colossus Intel would appear on the surface to have no commonalities with security vendor McAfee, while analysts and journalists alike have expressed significant scepticism about the wisdom of this acquisition – ourselves included.

But it’s hard to ignore that headline figure - $7.7 billion – which easily makes it the biggest deal in security history and in truth, opens another front for Intel which doesn’t step on obvious toes in the industry. McAfee was feeling the pressure at the high end from Symantec and the lower end from emerging rivals like Kaspersky – having Intel on board eliminates much of that stress. Intel is promising to use McAfee’s extensive expertise in the enterprise security space to power an entirely new range of products and services to take on its rivals.

Why it worked

The jury’s still out on this one, but we’ve inclined to swim against the current tide of pessimism. McAfee’s been highly active in the embedded space developing solutions for mobile connected devices like cars and printers – with Intel looking to provide the computing power in the background they can promote tighter integration and easier buy-in from large corporate customers. Intel’s certainly overpaid for McAfee, but what they’ve really bought is potential – and as VMware proved, you can never quite predict how these things play out in the long term.

4. Oracle, Sun (2009)
$ 7.4 billion

The facts

Some might say that this was something of a mercy acquisition. After its glory days selling servers by the bushel during the early internet days, Sun’s fortunes suffered as people avoided its pricey hardware and spurned its ambitious projects like the open source movement. Late last year, IBM started to make noises about buying the tech pioneer, as a way of shoring up its tech offering with a well-tested hardware complement.

Naturally, Larry Ellision couldn’t let this stand and nearly eight billion dollars later, he purchased Sun Microsystems, in a deal that put an end to one of the great tech pioneers – and also, an end to many of Oracle’s existing relationships with hardware partners HP and Dell.

Why it worked

Some might think it too early to tell but we’ll go out on a limb and say it’s worked. Sun was too large and inefficient to survive on its own, while Oracle wanted to offer potential customers a fully integrated chain of software, hardware and services. Some of the more altruistic aspects of the old Sun Microsystems have faded, as Oracle seeks to aggressively monetise its assets – for example, OpenSolaris is no longer being worked on by dev teams.

5. Google, Youtube (2006)
$ 1.65 billion

The facts

Call it a canny eye for business. YouTube is today practically synonymous with internet video sharing but when it set up shop in 2005, it looked for all the world like the next Napster – an ambitious site that promoted privacy above the need to protect copyright. Enter Google, which was looking for a site which could generate immense amounts of traffic – and what better than the world’s largest video site?

Why it worked

Google’s acquisition of YouTube provided a safe haven for the latter, shielding it from the wave of lawsuits that were piling up over the horizon and providing the muscle it needed to cut deals with content companies. Google got an interesting testbed for its video services (and one which was far more popular than its own Google Video) and YouTube got the infrastructure it needed to keep growing at a phenomenal rate.
Today YouTube has become a major part of the cultural firmament, plucking future stars like Justin Bieber from obscurity. Google may not be making a huge pot of money from it yet, but look at it as part of a larger marketing effort – and having YouTube on board suddenly makes sense.

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