I am fortunate to sit on the Advisory Board for McKinsey & Co.’s high tech practice. It is a wonderful learning opportunity – getting exposure to what they, and their clients, think is strategically important. I only hope that my experiences at HP, and now with Highway 12 Ventures, will enable me to contribute back to McKinsey, even a fraction of what I learn from them.
So, what kind of strategic advice are big players in the tech industry getting during this economic downturn? Everyone wants to survive when a major downturn hits, but some companies are able to find ways to emerge even stronger. I read an interesting paper today from McKinsey & Co. that sheds some light on this.
McKinsey analyzed the performance of 700 companies during market contractions over the past 20 years and found that there were significant shifts in market leadership through those downturns. Leaders became laggards and laggards became leaders. About half of the companies that entered the downturn as market leaders ended up as laggards when the economy turned around. Those companies that continued to be, or that became leaders implemented a number of actions. One of which, is very relevant to entrepreneurs.
During the last major downturn for high tech (2000-2002), the companies that emerged as leaders made significant acquisitions that strengthened their product/service portfolio and market position. The leaders made more, and more substantial, acquisitions than those companies that exited the downturn as laggards – they were 30% more likely to make acquisitions and racked up 26% more deals. The leaders also tended to wait until later in the downturn, when valuations of their targets were most attractive.
There are a lot of tech companies sitting on a pile of cash. They are compiling their shopping list and looking for ways to emerge from this recession as leaders. Get ready. I think in the next six to twelve months we could see M&A activity really start to pick up. What do you think?
Of course, as a matter of full disclosure, my timing hasn’t always been perfect. If it was, I would have sold all my HP stock when it was at $144 a share. But what the heck, it is back over $30 now.