There’s a feeding frenzy in the business world these days – deal mania!!! – and you might just get caught up in it. Big money’s on the prowl, looking for companies to buy, combine, or restructure – or at least get their hooks into so that they can consummate a marriage later.
[ Wall Street Beat: IT buyouts and acquisitions going strong ]
This week three such deals popped up that could have significant implications for enterprise IT.
1. Flextronics and Solectron. Much of the hardware IT buys, be it computers, networking, or storage gear, is actually made in Asia by so-called contract manufacturers. So when you purchase gear from a Cisco or an HP or an EMC, chances are the manufacturing, and even some of the design, may have been carried out by one of these giant, little-known subcontractors.
This week the No. 2 contract manufacturer, Flextronics, agreed to buy No. 3 Solectron for $3.6 billion. The rationale was that they both need to bulk up to compete with the No. 1 player, Taiwan’s Hon Hai Precision Industry. Flextronics came out on top because it had a stronger position in networking and computing devices, compared to Solectron, which was more tied to commoditized cell phone manufacturing.
The likely impact for IT buyers is that, over time, this deal will accelerate the trend toward IT product design moving further upstream – and related intellectual property assets shifting toward Asia. You may also notice your IT vendors start to get a little nervous because they’ll no longer be able to play Solectron and Flextronics against each other. Your vendors will also be forced to focus even more on software innovation, where they can retain greater profits.
2. Silver Lake/TPG and Avaya. Also this week, private equity firms Silver Lake Partners and TPG Capital announced an $8.2 billion acquisition of computer networking vendor Avaya, in hopes of upping the ante in the coming VoIP battle with Cisco.
The thinking behind this one is that Avaya needs to shed some fat and get into fighting trim, which will be easier to do behind closed doors as a privately held company. Enterprise IT customers should be on alert – you probably have some Avaya gear because the Lucent spinout has such a huge installed base in the Fortune 500. Any major changes will be binary for you – they'll either really help if they get it right or hurt you if they screw it up. Either way, with the private equity clock ticking, the status quo is no longer an option for Avaya.
3. Google and Salesforce.com. For much of last week many analysts were convinced that Google was going to announce a blockbuster acquisition of Salesforce.com. When it didn’t happen and the two companies presented a mere ad sales partnership, a collective yawn went forth from several corners.
But never you mind. If Google had a hand in floating that rumor, then it was clearly marking its territory for the benefit of Microsoft, IBM, SAP, and Oracle. As the markets inhabited by Google and Salesforce.com continue to converge (SMB customers who want transparently priced or free on-demand software services), the logic for this combination will become overwhelming.
As for the current impact on IT: none. But your Microsoft rep might just get a little friendlier as the hosted competition’s footsteps draw closer!