In a Reuters story this week, Symantec (Nasdaq: SYMC) CEO John Thompson said he's not planning any high-priced, transformative acquisitions. Rather, the focus will be on smaller deals, such as its $970 million purchase of Altiris in April. The new strategy should be good news for shareholders.
If you rewind back to late 2004, Symantec's stock price was about $33 per share. Taking advantage of its hefty valuation and looking for more growth, the company agreed to buy Veritas for a beefy $13.5 billion, which was the biggest M&A deal in tech history.
So why did the security giant want to buy a storage company that was starting to slow down? Thompson's rationale was fuzzy. But investors were clear; they dumped the stock. Even today, Symantec languishes at $18.75 per share.
Even though Thompson was a veteran of the tech world, he thought he could beat the odds. In fact, just a cursory look at the history of tech deals shows that transformative acquisitions can be disastrous. For example, there was Novell's (Nasdaq: NOVL) acquisition of WordPerfect in the early 1990s. Within 18 months, Novell lost about $1.2 billion on the transaction because of the onslaught of Microsoft (Nasdaq: MSFT).
Transformative deals are vulnerable to complex integration issues, such as melding sales channels and product lines. The cultural dissension can also be lethal, which plagued megamergers like AOL-Time Warner (NYSE: TWX) and Compaq-Hewlett-Packard (NYSE: HPQ).
Symantec's management seems to have learned from all this, and despite the troubles, I think it's nicely positioned in the marketplace. For example, the company is leveraging the infrastructure for things like on-demand storage, which could be a nice add-on product for Symantec's large customer base. Besides, Symantec is a dominant player in the security market, which is growing at about 10% a year worldwide, according to a recent study from research firm Gartner.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,509 out of more than 60,000 in CAPS. The Fool has a disclosure policy.
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