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Comment by pierreio | Hacker News Reader

So MS Bought Nokia and ~30k employees for ~$7.2 billion last April.

3 months later, MS may now be firing ~half of the Nokia group. The executives who drove that catastrophic deal stay.

What a testament to how disastrous big M&A really is. Is there any large acquisition that succeeded in the last 10 years? I'd feel sorry if I was a Nokia guy there, they pulled out the best non-Apple phone hardware in the last years.

Probably also a good reminder for Blackberry - dont sell yourself and die trying, it actually can't get worse.

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>'So MS Bought Nokia and ~30k employees for ~$7.2 billion last April. 3 months later, MS may now be firing ~half of the Nokia group. The executives who drove that catastrophic deal stay.'

My understanding, primarily from friends at Cisco which has its own history of acquisitions and layoffs is that this is roughly standard procedure, catastrophe or not.

Basically, there's always going to be a lot of overlap when acquiring another large company. Loads of people are made completely redundant and things that didn't come out via diligence are discovered.

There's a wait and see period where some people leave, followed by jockeying for position and finally layoffs of people who remain redundant and/or lacked the awareness to pursue either of the former two options.

Obviously, a merger which doesn't pan out would amplify the effect.

What I wonder is how much such a process actually affects the success of these mergers? Do the consultants and banks who assist in these sort of things have a variable to account the back-biting scramble that will take place in each first year?

Cisco does buy a lot of companies, but only about as many as google has bought. Though Cisco has has more billion $ or higher deals.

http://en.wikipedia.org/wiki/List_of_acquisitions_by_Cisco_S...

http://en.wikipedia.org/wiki/List_of_mergers_and_acquisition...

Cisco has a very different M&A strategy than Google. They add product lines through acquisition, in preference to building internally (if you're on a Cisco team and you're ever given an MRD for a product, the joke goes, quit and start a company to do it instead). As often as not, Google acquires companies to absorb the people. Google typically buys much smaller companies, and more selectively.

I would be very surprised to discover that Google has acquired close to as many headcount as Cisco has. But I don't want to do the research work either. :)

What does "MRD" stand for? I've been searching for a definition but I can't seem to find any, that makes sense in this context.

Given the context, I guess it's some kind of product development order?

Marketing requirements document; the set of features for the next release of a product.

Market Research (or Requirements) Document

It's a document that's usually produced by a product management group in a company that outlines (very vague, almost laughably so) the "market requirements" - what users will want/need - for a given feature or set of features.

This is usually handed to developers/designers to come up with a "High Level Design" (HLD) that gives the "how" to the MRD's "what".

It's usually only seen in larger software companies.

It'd be more accurate to say that MRDs are an artifact of waterfall design. Waterfall is out of fashion, and so small companies tend not to use it, but if you're shipping hardware (like Cisco does) it's often more natural than agile.

"I would be very surprised to discover that Google has acquired close to as many headcount as Cisco has. But I don't want to do the research work either. :)"

In 2012 Google acquired Motorola Mobility with it's 20,000 employees.

http://www.dailymail.co.uk/sciencetech/article-2148219/Googl...

I would argue that Google and Motorola never "merged".

Google just bought out the patents of Motorola and dumped the company away to Lenovo afterwards. There was no merging, no redundant employee elimination process, like in other mergers.

Plus, this number is obviously a large outlier. An actual stats person would just go calculate the figures with the outlier removed- Cisco probably made much larger acquisitions, employee count-wise, than Google in that case.

Disclaimer: I have worked for Cisco, and no longer do so.

Cisco is an engine for buying up small companies, digesting them, and extracting value from their products. It does not really do engineering or create its own product lines. As a result, it has polished the process of buying up companies, and progressively shutting them down while extracting the maximum sales value from the products that company has developed.

The key thing is that this is the core model of Cisco's entire business. It's actually not too rough on the people involved - the profits of the milking machine are shared fairly generously with the people being milked - but it is all about purchasing products with "potential future value" and converting it into cash, not creating new value.

By the way, survey of mergers found that while most mergers fail, Cisco is an outlier making successful mergers one after another. It is said that Cisco analyzed successful and unsuccessful mergers and does data-driven, evidence-based decision making.

http://www.overcomingbias.com/2010/03/hard-facts-mergers.htm...

Interesting.

'Cisco figured out that mergers between similar sized companies rarely work, as there are frequently struggles about which team will control the combined entity.'

I recall asking people there about why they didn't acquire certain companies that I thought would make a lot of sense from a technical / product perspective.

The typical answer was right in line with that quote - that Cisco stays away bigger companies that others might try to swallow at high cost.

That they look for logical acquisitions of specific products in the few hundred million dollar range, not billions.

So, we should let the comcast/time warner cable deal go through because there's a good chance they'll implode?

I would say they're already imploded and will become an even worse oligopoly. One of the companies will come on top in that struggle.

That's not really true. They bought SourceFire last year for a few billion.

>'That's not really true.'

Sure it is, there just happen to be exceptions.

Of the 21 years and 136 Cisco acquisitions with prices on Wikipedia, 14 come in over $1B. The average price overall is $530M, and the average price excluding >$1B deals with $178M.

SourceFire is a really small company by comparison to Cisco.

Further, people within the controlling interest tend to prefer dealing with those they know.

Even if you are a high performer, being part of the now-controlled interest deals you something of the short stick, as they say.

If your company is acquired, be prepared to move on. Regardless of personal performance, they may give you no choice.

Usually one of the main reasons you do M&A is that there are redundancies between the organizations. Therefore, being able to lay people off while maintaining the same output is one of the goals of the deal, not a sign of failure.

Ah, perhaps if you're the MBA bean counter type. In reality, you should grow the business, because now you have much better back-office capabilities to support a more distributed, more diverse workforce. Don't be afraid of having lots of people, be afraid of not managing (supporting) them well, causing inefficiency.

There is a whole lot of overlapping administravia, you don't need 2 full sized legal departments, finance groups, HR group, marketing groups, sales groups and so on. Some layoffs will happen.

You cannot merge 2 huge companies without significant layoffs; there are way too many overlapping job-responsibilities and it's impractical to somehow make that work. Maybe some kind of rare exception is a job that depends on physical location. If I already own a fleet ice-cream trunks in USA and I buy a company in Paris, I'm probably not going to layoff the paris ice-cream truck drivers...

Is there any large acquisition that succeeded in the last 10 years?

You might have the wrong criteria for acquisition success. I'm sure both Nokia and MS knew these layoffs would come before they agreed to the purchase.

I'm sure Nokia itself knew these layoffs were likely-to-inevitable whether that deal happened or not.

If that was the case, do you think most of the Nokia employees were actively looking for another job and were just riding the gravy train until it finally pulled into the station?

I would think if I worked at Nokia and we were acquired by Microsoft, I'd probably be looking for another job fairly quickly. Considering the writing was on the wall for a while even before they were acquired by MS.

If they weren't before, they will be now that Microsoft's layoffs over the next six months hang over everyone's heads. Microsoft should have ripped the bandaid off in one quick move so other employees will feel secure.

That will largely depend on the severance packages.

Those who stuck around through the merger and take take the first-round cuts offer will likely make out pretty well. Unfortunately for Microsoft, this means that they're largely paying for people with good strategic skills and a high capacity to find work elsewhere to leave.

It's the ones who stay put, largely out of lack of strategic skills and/or alternative options, who are going to be less valuable to the company. There may be further incentives but they're likely to not be as generous.

Or so say the rational expectations theorists.

Did MS? Including the cost of the lay off ($1.6b says Recode), Nokia price was actually $8.8b. What was their business case that was so easily scrapped just months into the purchase?

It may be successful on a tax/accounting perspective since the purchase was made in € with cash that couldn't be brought to the US.

Yet this does look like a gigantic waste of assets. Warren Buffett says that a successful business is all about mindfully allocating its resources. This looks like the oppsite - no wonder that Nadella has a hard time explaining what happens in simple words.

It can be argued that their patent portfolio was worth about that much.

Except that Microsoft didn't get the Nokia patents, merely a license to use them.

http://www.reuters.com/article/2013/09/03/us-nokia-microsoft...

Don't underestimate the value of the Nokia brand. Until recently, IIRC, Nokia was the world's largest seller of mobile phones. That brand image is worth a ton to help MS sell its phones.

Right up until they went windows phone only. The result is nokia's sales dropping, not windows phone sales increasing.

Coincided with yes, but saying it was the result of is making a fault with logic as I am sure you are aware.

Microsoft only has license to the Nokia brand through the end of 2015 (Nokia is still a separate company).

Adding layoff costs to the purchase price doesn't seem right. Severance is the bulk of it, and that's money you would have paid anyway if you had kept the employees on.

There's no evidence that the initial case for the acquisition was scrapped. On the contrary, it's almost a given that MS was aware of the post-deal costs. This is all quite normal for M&A deals.

Success is highly subjective. Perhaps you mean different?

> Is there any large acquisition that succeeded in the last 10 years?

Yes, many. Think of the Lenovo-IBM deal -- massive success. The Facebook-Whatsapp deal is 2.5x bigger than this acquisition, we'll see how that works out (financially). Google-Youtube is a big one that can be considered as a big success as well. Ebay-Paypal. FB-Instagram.

Bigger in terms of inflated stock prices, but not by head count. Lenovo has taken the Thinkpad line down the toilet, not that IBM wouldn't have.

> Lenovo has taken the Thinkpad line down the toilet

I think you're overstating things tremendously here. ThinkPad is alive, and from the reviews I've seen, doing well. http://www.engadget.com/2014/03/28/lenovo-thinkpad-x1-carbon.... Many buyouts end with entire products being canned.

I still have an IBM ThinkPad. They were good quality back then, but I really think the standard-bearer today is MacBook.

I don't think madengr is saying that the thinkpad line is not successful. Rather, I bet he means that the modern thinkpads do not fit in with the "thinkpad spirit".

New thinkpads are just like every other manufacturer's laptops, even the X line.

Facebook-Whatsapp are you serious?

One of these things is not like the others.

the Google-Youtube, FB-Instagram and FB-Whatsapp are clearly not in the same category of merger & aquisition as MS & Nokia.

That wasn't a merger that was IBM dumping a low margin business unit.

These Uber mergers never seem to create any lasting value

It does seem less likely for an acquisition of a large company to be successful than a small one.

The last three you mentioned are all tiny companies acquired for huge amounts of money.

YouTube had something like 60 people at acquisition -- definitely under 100. Instgram had under 20 I believe. Not sure about Paypal but I'm sure it was dwarfed by Ebay.

There is something to that. I think a smaller number of people can be integrated into a larger one, but when two massive companies like Microsoft and Nokia come together, there is bound to be friction.

Not sure what happened with Google and Motorola, but the companies were I think wisely kept separate, whereas it sounds like Nadella wants more "integration synergies".

Many of your examples are super-valued acquisitions, paid mostly with stock funny-money, and that employ a few hundred employees at best, which makes them irrelevant to the case here, where Microsoft got 30,000 employees from Nokia.

Google bought DoubleClick in 2008 for $3 billion.

> Is there any large acquisition that succeeded in the last 10 years?

Lots. Of course, success is relative to for whom -- many of them work out well for shareholders of the acquired firm, many work out okay for shareholders of the acquiring firm, and the executives on both sides usually do well.

Of course, part of how it works out for those groups is that it, by design, doesn't work out well for the "human resources" that are production inputs.

Your logic and worldview are all inverted.

You buy ailing companies and then cut fat. That's the plan, not evidence of a bad decision.

What was happening to Nokia WITHOUT getting bought and gutted? They were in a tailspin and had major internal friction issues getting good tech to the top of the consumer heap. They would be another Blackberry...

Oh wait, you also suggest Blackberry fight it out with their wet noodle of a product line?

As an employee, when you are acquired, you either are indispensable (and will not be made redundant) or you should probably head for the door so you aren't competing with your coworkers for spots when a flood of you are dumped into the market.

Microsoft got the products, IP, licensing deals and will be keeping a block of very productive employees. This is an obvious move and good for MS, MS shareholders, and, indirectly, consumers.

While I am no fan of the deal (to say the least), Nokia would have had to make these deep cuts independently based on the continued inability of Windows Phone to sell enough to support a company of Nokia's size.

I think the best way to say the above is not that "Microsoft lays off half of Nokia group."

It should instead be "Microsoft saves half of Nokia's employees jobs."

Depends on the viewpoint: When you acquire a company, are the employees assets or liabilities?

Who? The engineers? Clearly many of them would be liabilities as their product lost. Some visionaries are needed, some business people, some engineering leaders, some bright engineers, etc.

Unfortunately, some acquisitions are for talent, others for revenue, others for customers, others for technology, or a mix, and the talent here may be a mix bag.

You seem to not understand how mergers and acquisitions work. There are generally large redundancies which is part of the reason for the deal. Get rid of payroll while maintaining the same total output. Also, a major reason for buying Nokia had to be it's IP. I don't think this is any way a sign the deal failed, and I'm sure it was expected by all of the executives and most of the employees.

The situation is almost reverse in smaller scale companies. It is not unusual for a mid-sized company to acquire another mid-sized or small company, keep the factory workers, engineering, R&D and lay off all mid and senior management (though with pretty good severance usually) to install their own people.

It can get worse. MS could be firing the whole team and not just 50%. This is the reality that Blackberry faces.

It doesn't make sense for a company that's trying to sell itself to also start making large cuts - it may drive your own price down by signaling that your businesses lack potential. The acquiring company will calculate in the cost (and savings) from the cuts ("synergies", to use the banking term) and just roll them into the purchase price.

So if you're the selling CEO / board, you get to claim you sold the company whole, and if you're the buyer, you just blame the cuts on the increased efficiencies to be gained from combining the companies - it's a sign that the deal is "successful" and you're achieving the synergies you modeled before the purchase.

I think that "we can run this unprofitable business with half its current headcount, thus turning it into a profitable business" is hardly an indication of failure.

You're assuming the unprofitable business will become profitable.

Businesses are never unprofitable because they have too many employees.

Businesses are unprofitable when management lacks the skills, the foresight, or the vision to make those employees profitable.

Edit: If this isn't obvious consider what a world-class entrepreneur could do with 12,000 experienced employees, a couple of billion in severance savings, and a kick-ass idea.

What can you do with 12,000 employees with minimal experience and skills who have been working on a long-standing but now obsolete product line that was manpower intensive, when your business is being completely realigned around other product lines that still make a profit but rely on small numbers of highly experienced staff?

This is not a random question; this company exists.

Very strange comment, I'm sure execs expected all of this when the deal was done. Their expected outcome probably does not look "catastrophic" to them.

Actually, I would say that by the time the deal rolled around the catastrophe had already played itself out at Nokia. It's sad what happened to Nokia, but the acquisition is the least of it.

The whole point of M&A is too eliminate redundancies in the acquired company, so you can drive the same aggregate revenue with lower aggregate costs. Layoffs are not a sign of M&A failure, they are at least neutral, and might be a sign of success.

edit: clarifying language

I hope the ex-Nokia people start a phone company.

ehm... http://jolla.com

>> I'd feel sorry if I was a Nokia guy there, they pulled out the best non-Apple phone hardware in the last years.

They have almost no marketshare in the US. So is it really the best non-Apple hardware, or does being the best not really even matter?

That could be changing and the US is not the only market that matters. There is a reason Google, Tinder and other companies deny perfectly working apps on the Windows ecosystem and its not because Windows phone is irrelevant.

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