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2014: A Big Year for M&A

WASHINGTON—The unexpected news at NAB this year was the changing of company uniforms and signage on so many booths. Considering the pattern of the past 20 years, we shouldn’t be so surprised by these announcements of mergers and acquisitions. It isn’t really a new thing. But it’s always an interesting thing.

Perhaps it’s the frequency of company name changes that might be more than we’ve come to expect. For example, it was only December 2012, when Harris Corp. announced their sale of the Broadcast Communications division to Gores Group. In February, 2013, they announced the "done deal," after which the new member of the Gores Group family started calling themselves Harris Broadcast, with an awkward fine print disclaimer on all of their outgoing communications that Harris Broadcast is not associated with Harris Corp. We all suspected that another name change was imminent.

In January, 2014, Harris Broadcast completed the acquisition of Imagine Communications. Then, on March 17, allowing just enough time to change all their NAB booth designs, Charlie Vogt announced that Harris Broadcast had undergone a mitosis style of cell division into two separate companies—Imagine Communications and Gates Air. Just as all the ex-Harris staff were adjusting to their new corporate identity on the booth at NAB, Charlie made another announcement that Imagine Communications was acquiring Digital Rapids.

The Imagine Communications family tree is quite a complex thing. I first came into contact with some of the upper branches of that family tree in 1993 and 1994. I met and had dealings with Ken and Hayley Louth of Louth Automation in relation to Star TV’s multichannel automation rollout in Hong Kong. At around the same time I met some Drake Automation people who were working on BSkyB’s multichannel rollout in the U.K. At around the same time I met senior people at Columbine in Denver who were working on Star TV’s new traffic and scheduling systems. Much later I met some Leitch people who were trying to do a deal with Phoenix TV.

In a short space of time, and forgive me if I have the wrong sequence here, the following occurred: Columbine merged with JDS to become CJDS, and they acquired Drake Automation and then merged with Enterprise to become Encoda. Meanwhile, Harris Corporation had acquired Louth Automation. Then Harris acquired Encoda, and then they acquired Leitch the following year.

If genetic diversity is a healthy thing, Harris Communications was a picture of health. But then came 2007 and 2008. Nearly every American company lost considerable muscle mass during the recession that followed. And in particular, the broadcast equipment business became “not what it used to be”. It was time for some corporate children to leave the Harris nest.

A similar history can be traced for the MPEG encoding equipment sold currently under the Ericsson brand name. I first met that development group in England when they were called NTL, circa 1995. Then they became DMV when News Corp. bought them, and then then they became a part of NDS after it was launched. They were eventually sold to Tandberg and then finally the broadcast encoder group was sold to Ericsson. NDS has since been sold to Cisco. And Cisco has also bought the teleconferencing arm of Tandberg.

It’s a common pattern, and perhaps it’s all a necessary part of a strategy for corporate survival. It doesn’t always work. There are many successful and failed examples in every industry for business Ph.D. students to analyze.

This year, 2014, is particularly interesting though, because in addition to the Imagine Communications bloodline story we also have the story of Quantel acquiring Snell, just five years after Snell formed out of a merger of Snell & Wilcox with Pro-Bel. Before merging with Pro-Bel, Snell & Wilcox spun off Amberfin. And this year, Dalet acquired Amberfin. Wouldn’t it be interesting if Snell now merged with Dalet? I’m not starting a rumor, just laughing at the possibilities.

And there’s more. Belden acquired Miranda a short while ago. Belden acquired Grass Valley quite recently. Masstech acquired Playbox, and Vislink acquired Pebble Beach. And Vitec Videocom acquired Autocue. Apologies if I left somebody out. It’s hard to keep up!

Mergers and acquisitions are typically pursued as a way of expanding a business. The product line is usually enhanced. The technology and intellectual property base is expanded. The sales channels are bolstered. In some cases, sales territory is expanded geographically. Backroom administrative costs can be shared. But these benefits can’t always be realized overnight. It takes significant time for the dust to settle on a merger.

The so-called synergy benefits of bringing disparate but related product groups under one corporate umbrella can take significant time to be realized, because the newly married product groups don’t necessarily integrate perfectly until a lot work is done in that direction. These “integration” activities are an overhead while they last, not an asset.

And finally, the value of the original brands before they merged is sometimes sacrificed in favour of the older or bigger sibling. Take for example Avid’s acquisition of MAM vendor Blue Order and its good software a few years ago. Blue Order as a brand disappeared pretty much overnight, and in this author’s opinion, the loss of that brand softened the benefits of the acquisition. But that’s just one person’s opinion, and he’ll be happy to debate it over drinks with his friends at Avid during IBC or NAB--assuming they’ll still be called Avid by then. Again, not starting a rumor, just making a joke.