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Google shook up the tech world this week with its proposed acquisition of Motorola Mobility for a cool $12.5 billion. This means that Internet search company would begin to manufacture cellphones and tablets, among other things, allowing it to take on Apple even more aggressively.
Google is no stranger to acquisitions, having bought up more than 100 companies during the past decade (though none of those deals comes close in size to Motorola). In a recent interview with McKinsey Quarterly, Google Chief Financial Officer Patrick Pichette offered some thoughts on mergers and acquisitions. “The best way to portray M&A is as an accelerator,” he said. “For M&A, the mind-set is to comb the world constantly, given our agenda of development. If we find a piece that fits what we’re going to do in eight to 12 months—for example, we have a team of six and we know we need a team of 15—then M&A is an accelerator because it fits into a very clear plan of what we’re trying to achieve.”
The offer to buy Motorola has struck some observers as overly expensive, but Peter Drucker cautioned against focusing too heavily on financials when making an acquisition. The idea of a “piece that fits,” as Pichette described Google’s acquisition targets, is much more important. “Successful acquisitions are based upon business plans, not financial analyses,” Drucker wrote. “Acquisition targets must fit the business strategies of the acquiring company; otherwise, the acquisition is likely to fail.”
Drucker had much else to say about acquisitions, and he compiled a list of five rules to follow for anyone looking to take over a company successfully. But the simple notion of focusing on business plans rather than money alone is crucial and all too often ignored.
“Executives, of acquirers and targets alike, still largely ignore the rules, as do the banks when they decide to finance an acquisition bid,” Drucker wrote in the Frontiers of Management. “But history amply teaches that . . . [they] will come to grief if they do judge an acquisition financially instead of by business principles.”
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History: In May 2006, more than 100 leading Drucker-like thinkers and practitioners gathered in Claremont, Calif., to help answer one question: “What is Peter Drucker’s legacy?”
Attendees included Jim Collins, best-selling author of Good to Great and Built to Last; Paul H. O’Neill, former U.S. Secretary of the Treasury and former chairman of Alcoa; A.G. Lafley, chairman and CEO of Procter & Gamble; Nobuhiro Iijima, CEO of the multi-billion dollar Yamazaki Baking Co.; and Masatoshi Ito, the founder and honorary chairman of the Ito-Yokado Group, Asia’s largest retail chain.
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