Sunday, February 24, 2008

Another Frankenstein M&A, this time in the Public Safety space?

The good thing about writing for the INQUIRER is that after years of practice (I started back in 2002) sometimes you find great news on your own. But even better, sometimes NEWS FINDS YOU, and in some cases, about companies you´ve never ever heard about .

In this case, people who prefer to remain nameless have expressed their worry and outrage about a probable M&A on the Public Safety space. The main source who sent me this rumor has been around public safety organizations for nearly twenty years and often hear rumors, most of those are mundane and without much consequence, but he swears this one is not that case.

From the heart of Texas... the rumor mill says the marriage from hell would involve tiny European EADS trying to match (or digest?) an unnamed West Coast public safety company several times its size.


Here´s the first message I received, un-edited:


For nearly seven years, EADS - Security Networks - North America (a.k.a EADS-PS) has been educating American public safety officials about their multi-billion dollar parent company in Europe. EADS wants to escape their saturated market places in Europe, regarding Land Mobile Radio (LMR) systems, where they have the greater market share in Tetra/Tetrapol based radio.

The only problem is that the non-Tetra/Tetrapol technology based Public Safety first responder folks in North American and USA markets want to see an installed working fully mature LMRsystem without flying to Europe. These same Public Safety first responder folks want to obtain P25 technology (APCO and TIA-based current technology platforms) and do not want to fork-lift out all their working legacy radio and dispatch equipment aka infrastructure like reporting software and computer aided dispatching software).

Instead, they want to evaluate a functioning Public Safety first responders turn-key, LMR system, integrated to dispatching equipment of various types, which includes emergency telephone answering points, records management systems, mobile data, graphics and other database systems and equipment - _ALL of which uses standard-for-USA radio RF and dispatching protocols.

Some background info:

Since 2003, the U. S. Department of Homeland Security has been passing out big checks to the regional and state public safety organizations who will install a P-25 protocol based system. Only problem is that there are really only two folks who can install a complete turn-key, end-to-end, P-25 system -- namely Tico MA/COM and Motorola.

So to overcome the deficiency of having only 25 percent of their competitors’ capability, EADS is talking about buying an American public safety company. How does a big fish (like EADS) eat a small fish (unnamed American company) and not get a belly ache? It is widely accepted that merging two companies is never easy.

Accenture is a specialist studying this problem. They have over twenty years' experience and have looked at over 400 mergers and acquisitions Accenture agrees with a February 2003 Harvard Business Review article which says the results for a merger are determined by what is set up at the beginning. The biggest factor which leads to failures of a merger is cultural differences between the companies. Now, a group of business people with European backgrounds needs to buy a public safety vendor in the USA for one of their smallest divisions. Where should they look for such a deal?

For EADS, that is a triple whammy. Their parent is as big as Lockheed and, like Lockheed, their bigger customers are government organizations. If EADS European headquarters asks their European bankers, who in turn will ask American bankers, they’ll probably end up looking at someone who is larger and has a polished offering. There are two locations in the USA where European companies most often go to look for this sort of an offering: Boston and Silicon Valley. That is where the big venture capitalist firms are located. These are the VC who specialize in finding that “something special in our portfolio that just might fit your needs.”

Is the rumor true that EADS Public Safety has less than 40 people and that they are thinking about buying a West Coast company that has nearly 600 employees and five locations? The supposed West Coast company was created by at least four acquisitions since 2005. Hmmm, looks like there has to be multiple cultural dimensions for that West Coast company. Are all the hiccups of those multiple acquisitions completely worked out? The same Harvard Business Review article says that in the first year of a merger nearly 25 percent of the executives and other talented employees leave – three times the rate for a similar company without a merger. In the second year, an additional 15 percent leave, which is twice the normal rate. This high departure rate continues for up to nine years after a merger says Harvard Business Review. If you apply those percentages to that newly grown West Coast company with four mergers since 2005, it is probably a safe guess their best leaders and their brightest team members are probably already gone.

The goal of EADS Public Safety in Texas and their European headquarters, may be a good one, but the method of reaching it could leave them with more problems than they bargained for. Seems to me at this point, EADS Public Safety really needs to develop a clear plan for how they are going to integrate all these different cultures into their own giant European corporate culture.

People from two affected companies see this as setting up a disaster which will hamper EADS over the long term. They think a completed buyout of PlantCML "would give backchanell info direct to Motorola". That "would keep Motorola safely in the drivers seat for controlling USA Public Safety even though that division is not profitable".

"It remains a part of the whole operation by having its low profitability folded into a larger division of Motorola." said one source.

Asked about why the disliking of Motorola, THE SOURCE told this scribbler that Motorola apparently has an arrogance problem "I have a long standing dislike of Motorola Public Safety telling cops and fireman that _only_ Motorola knows how tobuild Public Safety radio communications. This buyout will keep the USA on the path for non-world-side interoperability" he concluded "we have enough of that "not invented there" thinking in the industry now".


Agree? Disagree with these sources? I admit in shame not being well aware of the U.S. public safety marketplace but I can surely identify with the "not invented here" syndrome which is and has been poisoning most IT firms I´ve known over the years, which a few notable exceptions.

So, do you have anything to do with public safety tech? Agree/disagree with this rumor and conclusions? Shoot out on the comments section.... Also if anyone from Hello Moto reads this and wants to comment, feel free as well. I´ll give equal air time to all positions.

Several warnings:

1. Take this as what it is, a rumor. It might happen, it might not. I´m just interedted in the "what if" factor. If what my source said is true, what will happen?.
2. I have to admit that I kinda agree with Mr. J in that in very few instances I´ve seen a small firm buy another several times its size. And he has a point with regards to the cultural differences (Mormon Utah based Novell and cold German Engineering based SUSE comes to mind).
3. I do not share my source´s contempt wrt Motorola. Well, I can´t speak about thier public safety division, but I don´t think Moto sucks, as a whole...

(OK, on second thought I do remember how they had the upper hand with the PowerPC and blew it)
4. I plan to buy myself a Linux-powered Moto A1200 soon. Wonder why Moto isn´t promoting these phones more. :-) :-(

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