Tech Buyouts: From Best To Worst
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Nothing quite gets the business press salivating like a high flying corporate tech buyout.
We get the same combination of sweaty palms, jittery energy and butterflies in the stomach that gossip columnists get when there is a celebrity wedding or economists get when the latest round of GDP figures are due.
There are, of course, plenty of reasons to get excited when some of the largest companies on the face of the planet shell out billions of dollars to gobble up their rivals and acquire innovative young companies. In a primal way it is almost like watching a big fish eating a smaller one.
And much like watching a larger animal consume a smaller one, much of the drama of big league buyouts comes from the unknown effects the purchase will have. Was the smaller company full of poison that will rot the larger one from the inside out, or will the two companies combine together into something much bigger and stronger?
To give us an idea of just how varied the results can be, let’s look at a few examples.
Google buys Youtube – $1.65 billion
There were a pretty substantial amount of puzzled looks and scratched heads when Google decided to buy a barely one year old video broadcasting site in 2006. The purchase rapidly went on to become one of the shrewdest decisions the company ever made. In 2013, the site is the third most visited on the web (behind the Google site itself and Facebook) and its user numbers have gone from around 50 million total users to more than 1 billion unique users every month.
eBay buys PayPal - $1.5 billion
In 2002, the online auctioning behemoth eBay bought the fledgling PayPal in order to capitalise upon its secure and user friendly system of online payments. As of 2012 PayPal was bringing in around 40% of eBay’s revenue, bringing in $1.37 in the third quarter alone.
Microsoft buys aQuantive – $6.3 billion
This 2007 deal represented the largest amount that Microsoft had ever paid for another company and it still remains one of the largest deals of its kind. The smaller company was an up and coming advertising agency and the deal meant that all of its products and services were to be rebranded as part of the much larger Microsoft Advertising venture.
The buyout has had a chequered past so far. In 2012 Microsoft declared a $6.2 billion loss in revenue that was attributed directly to the 2007 purchase.
Google buys Double Click – $3.1 billion
This 2008 purchase allowed Google to strengthen its dominant position in the online advertising game. DoubleClick was an ad-serving firm that had a pretty substantial list of clients. The hefty price tag was reportedly a result of an intense bidding war with Microsoft.
HP buys 3PAR – $2.35 billion
The result of intense and complex manoeuvrings from all three parties involved in the bidding war (Dell, HP and 3PAR themselves), this high valuation was surprising to anyone outside the specific industry 3PAR worked in.
While HP is a household name, 3PAR had been quietly and innovatively building up their storage space business since 1999 to the point where this deal was not nearly as extravagant as it first seemed.
Yahoo buys GeoCities – $3.6 billion
Yahoo paid a pretty hefty sum for the online community site that aimed to emulate the feel of real-world neighbourhoods in the midst of the period of rapid market expansion that would later become known as the ‘Dot-Com Bubble.’
It sense to purchase the site in 1999 as it was the world’s third most popular website. But the site had limited functionality and high server costs that made it ill-suited for the web 2.0 age. The site limped on until 2009 when Yahoo finally decided to take it round the back of the shed and put it out of its misery.
Yahoo buys Broadcast.com – $5.7 billion
While Yahoo has in no way cornered the market in unsuccessful buyouts, they have certainly been guilty of spending large amounts of money on companies with limited adaptability. The huge sum paid in 2001 for the Broadcast site (no, me neither) is a testament to this.
Broadcast.com was an aggregate site for internet radio broadcasts and once its 15 minutes of fame had passed it quickly drifted into irrelevancy.
The whole AOL Time-Warner thing – $165 billion
In 2001 this monster deal was the largest combination of two companies ever attempted. A year later the company reported a loss of $99 billion and a year after that decided to completely drop the ‘AOL’ part of its name. I think it’s safe to say that it didn’t go as well as everyone had hoped.
This broad spread of tech buyouts shows us that there is always an inherent risk in taking the leap into the deep end with wheel barrows full of cash. When it works it really does but when it doesn’t it can loom over a company’s balance sheet for years and years.
Can you guys think of any other huge tech buyouts that were strokes of genius, acts of pure lunacy or simply a case of a company paying way more than they should have?
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