Reporter: "How many acquisitions do you do?"I was just talking with someone today about how many large companies seem dysfunctional with their acquisition strategies.
Schmidt: "It's one or two a week it seems. Most acquisitions: They are very small. 1-2-3 people and you never, never hear about them."
I recall seeing some business research that showed that the majority of large acquisitions result in a net loss in value for the merged companies and most of the remainder fail to create measurable value. Only a tiny minority turn out to be a long-term win for shareholders.
Very small acquisitions, by contrast, are easily integrated and typically create value. They also tend to be relatively inexpensive -- few investors to buy off -- which further reduces risk.
Nevertheless, managers tend toward the big mergers, apparently because managers' personal incentives often tend to encourage empire building over maximizing long-term value.
Google's acquisition strategy sounds remarkably sane compared to most.
[via Haochi in the Google Blogoscoped forums]
Update: A month later, Alan Sipress at the Washington Post wrote an article, "Google Goes to Market", about Google's strategy of tiny acquisitions. [via Barry Schwartz]