Why Mega Software M&A Often Fail (Pt.2)

Summary

• Part 2 examines common pitfalls in software M&A, including poor planning, execution, and the misalignment between top-down narratives and operational realities.
• It discusses prominent M&A failures like HP-Autonomy, Intel-McAfee, and eBay-Skype to illustrate the consequences of flawed integration and strategic misalignment.
• We underscore the importance of maintaining talent, governance, and addressing integration complexities, such as merging disparate software stacks and mitigating technical debt.
• We highlight the challenges of aligning differing revenue models, architectural approaches, and levels of vertical integration in M&A scenarios.

Post M&A

Planning & Execution

Given the challenges discussed in Part 1, it’s unsurprising that many software M&A deals suffer from poor planning and flawed execution. Often, deals are driven by top-down narratives crafted by consultants and sell-side analysts, whose storytelling skills can overshadow critical bottom-up considerations. This frequently results in a disconnect between high-level expectations and ground-level realities, leading to minimal or even negative synergy once the acquired company is managed by those who may not fully understand its operations or technology.

A classic example of this disconnect is HP’s acquisition of Autonomy in 2011 for $11.1bn. HP, a hardware-centric company, was enticed by Autonomy’s AI-based automation potential — though AI was far less developed than it is today with technologies like ChatGPT. HP proceeded with the acquisition without a thorough review of Autonomy’s actual products, buying into a story rather than tangible assets. Post-acquisition, HP discovered that Autonomy’s offerings didn’t meet expectations and ultimately wrote down 100% of the goodwill, followed by lengthy legal battles accusing Autonomy’s founder of corporate fraud.

The previously mentioned Intel acquisition of McAfee in 2010 for $7.68bn is another cautionary tale. Intel aimed to integrate endpoint security directly with its chip technology, but this vision failed to materialize. Under Intel’s management, McAfee lost its innovative edge, and its former CTO went on to found CrowdStrike, now the leading endpoint security company. Meanwhile, McAfee stagnated, posting low single-digit growth and weak profitability — a stark contrast to Intel’s original vision for the acquisition.

Similarly, eBay acquired Skype in 2005 for $2.6bn, intending to integrate real-time communication into its e-commerce platform. However, the integration didn’t go as planned, and Skype missed the opportunity to capitalize on the rising demand for video conferencing. Competitors like Cisco’s Webex and later Zoom took the lead, leaving Skype as an unfulfilled part of eBay’s portfolio.