Who Gets Rich When Tech Firms Marry?
It's tempting to look at the three recent tech breakups at eBay, Hewlett-Packard and Symantec as more evidence that big deals engineered by big companies run by big people with big egos were ultimately bad for those same companies and their investors.
After all, the mergers and acquisitions roadmap is littered with the carcasses of pricey targets like Palm and Motorola. And transactions like the AOL merger with Time Warner and Hewlett-Packard's acquisition of Autonomy will be longstanding posterchildren for abysmal dealmaking.
But breakups allow us to do something interesting: examine how much an acquired company grew after it was taken over. In that context, you can get a decent sketch of which companies managed takeovers fairly well and which ones didn't (while acknowledging that these three deals alone are hardly proxies for the performance of the M&A market as a whole).
EBay and PayPal
Deal announced: July 2002
eBay Revenue: $1.2 billion
PayPal Revenue: $105 million
Split announced: September 2014
eBay Revenue: $8.3 billion
PayPal Revenue: $6.6 billion
Stock gain since the acquisition: 303 percent
Nasdaq gain over the same period: 220 percent
PayPal and eBay famously warred for months before the deal, and relations were frosty after it closed. (All of PayPal's top executives left in the wake of the acquisition.) But for many years the payments company thrived within the online auction site. eBay invested heavily in PayPal and long provided the bulk of its transactions. The two sides have outgrown one another, but not after several years of decent stewardship and revenue growth. Even troubled marriages have their moments!
Hewlett-Packard and Compaq
Deal announced: September 2001
HP Revenue: $47 billion
Compaq Revenue: $40 billion
Split announced: October 2014
Hewlett-Packard Enterprise: Revenue: $58.4 billion
Hewlett-Packard Inc. Revenue: $57.2 billion
Stock gain since the acquisition: 95 percent
Nasdaq gain over the same period: 152 percent
When the deal was announced, HP's then-chief executive, Carly Fiorina, hoped that the combined hardware businesses would create a revenue stream of more than $80 billion and be the world's largest personal computer maker. The vision was shortsighted: desktop and laptop prices plummeted and rivals moved first into higher margin products like software and services. The personal computer and printer business (Hewlett-Packard Inc.), into which HP folded Compaq, is worth about $57 billion, far short of the original vision. The software and services piece (Hewlett-Packard Enterprise) never got the attention it needed and it lags rivals like IBM.
Symantec and Veritas
Deal announced: December 2004
Symantec Revenue: $1.9 billion
Veritas Revenue: $2 billion
Split announced: October 2014
Security-related revenue: $4.2 billion
Storage Revenue: $2.5 billion
Stock gain since the acquisition: -13 percent
Nasdaq gain over the same period: 99 percent
Analysts have long said that Symantec should never have bought the storage company Veritas. In the decade since the acquisition was announced the storage division hasn't delivered much growth. Symantec didn't improve on its core security products and they were eventually eclipsed by rivals like Palo Alto Networks.
Evaluating companies this way isn't a perfect analytical tool, obviously, but it does offer one way of looking at merger titans' abilities to engineer commercial and financial success. As eBay, HP and Symantec prepare to offer trimmer versions of themselves to the market, business partners and their employees, it's worth remembering that they're asking all of these stakeholders to trust them once again. If they start to appear anxious to do another big acquisition down the road in order to juice growth, the smart money will remember which companies and management teams were good at that -- and which ones fumbled.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the editor on this story:
Timothy L O'Brien at firstname.lastname@example.org