Takeover spree raises questions

Associated Press

SAN FRANCISCO

The world’s largest technology companies have been on a buying spree, spending billions to snap up smaller companies. And often the buyers say they’re doing it for their customers — businesses, hospitals, schools and government agencies.

As tech companies get bigger and bigger, they say, they can offer a broader variety of products and make it easier for their customers to do one-stop shopping.

Yet if you ask the customers, you hear a different story. Often they get new headaches with multibillion-dollar deals by the likes of Oracle, IBM, SAP, Dell and Hewlett-Packard.

When you add the challenges that come with any corporate acquisition, it’s not hard to envision a reverse trend eventually building: a drive to split up tech companies that have grown too large.

In other words, the tech consolidation of the past few years could turn out to have wasted shareholders’ money.

“The demand is not coming from the customers,” says Gopal Khanna, who oversees a $600 million technology budget as chief information officer for the state of Minnesota. “On the contrary, I’m best served when there’s a phenomenal amount of innovation happening. ... Sometimes creating behemoths slows down that innovation engine.”

Technology companies have spent more than $350 billion buying other companies worldwide over the past 3 Ω years, according to Capital IQ, a division of Standard & Poor’s.

Hewlett-Packard Co., the world’s biggest information-technology company by revenue, has been one of the most active, in a hunt for more profit in markets other than printer ink.

The companies making these deals say they want to give their customers more options, better prices, and smarter service. It’s somewhat like buying Internet, cable TV and telephone service from one company instead of three: You’ll save money by buying the bundle, and when you need things fixed, you have only “one throat to choke,” in tech-industry parlance.

The flip-side is that a customer accustomed to dealing with a specialty maker of software or hardware often gets worse service after that supplier is taken over.

Deals in technology can be even riskier than average because of the complexity of the industry’s products. Although acquisitions can offer short-term financial boosts for the buyer, technology ages quickly, and acquired companies require substantial investment to keep their edge.

It can take years for an acquired tech company to be fully integrated with its buyer, which is one reason history is peppered with examples of acquisition flameouts that repelled customers.

IBM and several other large, acquiring companies declined to comment or connect The Associated Press with customers who are happy about the industry’s consolidation.

Resigned to the idea that the industry is consolidating, many tech buyers try to plan accordingly.

Leo Collins, chief information officer of Lions Gate Entertainment, says smart tech buyers look for suppliers that are the likeliest to stick around over the long haul.

If a supplier starts to struggle, he tries to move away from it before it is bought, which reduces the risk of being stuck with outdated or unsupported technologies.

Failure to do that, he says, could leave a customer “isolated in technology backwaters.”