The Cost of M&A, Risk Aversion

Wally Rhines CEO and Chairman, Mentor Graphics wrote an insightful piece a few weeks ago in EE Times explaining the semiconductor M&A phenomenon which reached $100B of the $160B proposed mergers just last year. “That’s more than six times the largest annual merger amount in the history of the semiconductor industry,” Wally explains.

In my last post I wrote about a new measuring stick of sorts for designers and manufacturers within the semiconductor industry. Possibilities promise to drive forward the next frontier, but the frequent byproduct to taking steps forward is the need to take a step or two backwards. Improvements rarely come without setbacks.

M&A provides some of those opportunities. It also provides problems, disruption, and significant risk. New and more complex demands are driving forth advancements in products, technology, and the very foundations of manufacturing. Topics and areas for improvement abound: 3D printing, robotics, drones, and artificial intelligence to name a few. Now, through M&A, firms are blending technologies, products, customers, personnel, cultures, and go-to-market strategies. Often overlooked is the fusion of systems. Integrating disparate piles of automation and disjointed point-solutions across a vast network of locations. Management is attempting to realize revenue across multiple product lines, achieve visibility into manufacturing, supply chain, all with a fractured ecosystem of technology being overseen by a typically casualty-riddled IT staff. It’s complex to say the least.

Everyone is trying to get to one version of the truth. The right data, organized the right way, to make the right decisions. The speed at which companies can obtain this system of record helps them realize value from the M&A activity, while helping them identify areas for synergy, and ultimately advances their business during uncertain and turbulent times.

There is no doubt the market is trending towards needing a robust smart manufacturing network as we propel towards the IIoT and Industry 4.0.

However, companies look at software technologies like necessary evils . . . capital expense, corporate buy-in, excessive cost, and integration nightmares. This perception hinders constructive organizational evolution.  I’m not arguing that change doesn’t bring inherent risk, but conversely what is the cost of inaction?

"There are risks and costs to action. But they are far less than the long range risks of comfortable inaction." John F. Kennedy

The risk and cost associated with inaction can be immense. Most technology investments were made 5, 10, 15+ years ago. Much has changed (and will keep changing) but the systems which serve as the backbone for manufacturing have remained sedentary and heavy-laden. They have been band-aided along, kicked down the road, and in my mind ultimately need to be abandoned in the roadside ditch for modern advancements in software.

Is M&A in your future, rearview mirror, or the current thorn in your side? How are you coping and profiting from M&A? Would love to get your perspective. What advice would you offer? What questions do you have regarding system risk aversion? Where did I get it wrong?

_______________________________________________________ You can read the originally posted article on Manufacturing Geek. MG is a great place to read and discuss varying topics and trends affecting global manufacturers.