Intel announced yesterday, it’s agreement for a $7.7 billion cash acquisition of the security software firm McAfee. I’ve taken a few liberties on scoring this deal, positioning the 60% premium over stock price as a combination – McIntel – (pronunciation tip – think McIntosh…).
There may be a stronger ‘strategic fit’ for Intel to buy GM’s upcoming IPO so they could make sure Intel chips are built into GM cars.
Overall, this is a bad deal for Intel shareholders. It signals a move for the company to become a tech diversification company, of the same class as Cisco. Sure, IBM and Oracle might be considered by some to be in the same category, but these large technology companies still address their target customers. They haven’t like Cisco strayed from enterprise buyers to consumers. Intel, which sells big to computer OEMs (Apple, Dell and HP are three big customers/channels) will now be selling to and through VAR channels that sell security software products and services to enterprise.
Sadly, Intel has attempted this class of ‘ultra’-diversification before. They acquired VPN company Shiva, DSP-based VoIP gateway company Dialogics. In these two cases, it didn’t end handsomely for Intel at all. Shiva just shriveled up, while Dialogics eventually became a standalone company; both generating loss in value to shareholders.
I don’t think this will end pretty for Intel shareholders because there is little-to-none synergy between the Intel business and the McAfee business. McAfee software won’t care what chip it runs on and Intel chips won’t care what security software it runs.
Here’s the Brockmann Deal Score Card:
Strategic Fit: 1/5
I don’t see any synergy here or economies of scale to be achieved. Both are somewhat mature markets and are quite independent. There may be a stronger ‘strategic fit’ for Intel to buy GM’s upcoming IPO so they could make sure Intel chips are built into GM cars. This is about Intel becoming a holding company with several operating assets in several markets.
Timing: 5/5
Intel is flush with cash (as are most of the F100) and needs to acquire other companies with the goal of positioning itself for growth in time for the end of the recession. With this goal, it has to make sizable deals so any growth can move the needle for the whole ship.
Customer Demand: 0/5
McAfee and Intel are both mature players in their respective mature markets. Granted, Intel dominates processors while McAfee is merely a contender in the fractious security software market. There are no markets where Intel can help McAfee sell more, or where McAfee can help Intel sell more. There’s no technology plan (at least that I’ve even remotely heard of) that might imbed McAfee technology into Intel chips.
Channels to market are different for these two companies and the products of one aren’t particularly important to the buyers in the other channel. Intel sells to PC manufacturers while McAfee sells to enterprise security staff and to consumers.
Potential: 0/5
There will not be $1 of value created as a result of this deal to create new products or new channels or new markets.
Overall, I have to score this deal low – 30%. It lacks the key value factors that are important in successful deals. It lacks any real strategic significance or positive impacts on customer demand or even potential of the two companies. Not impressed. Not impressed at all.