5 of the Worst Tech Acquisitions From the Past 5 Years

With Hewlett-Packard recently announcing the writedown of its Autonomy acquisition just over a year after that deal closed (and after a separate impairment last quarter), it would seem that a recounting of some of the worst tech acquisitions in recent memory is in order. The following weren't plagued by allegations of fraud and cooked books like the Autonomy deal -- just plain poor decision making and simply overpaying were the culprits here.

When acquisitions attack!
Merger and acquisition activity is important for companies to tap into new areas of growth and potentially realize cost-saving synergies in the pursuit of profit maximization. Trouble can arise if an acquirer pays too much for a target and things don't pan out as hoped. In those cases, investors will eventually face painful goodwill and intangible asset accounting charges.

For this list, I looked at companies that announced impairments within the past five years (regardless of when the deal was initially announced). Then I considered a number of factors including the magnitude of the premium paid (for publicly traded companies), how large of impairment was recognized relative to the purchase price, and how quickly management realized it just wasn't meant to be.


Zynga and OMGPOP
Social gamer Zynga has had quite the short life in the public fast lane. One of the biggest challenges facing the company has been to diversify away from Facebook's platform and toward mobile ones like Apple iOS and Google Android. The company's acquisition of OMGPOP was a major dud:

Acquisition Price

$183.1 million

Goodwill and Intangible Assets Recorded

$137.3 million

Impairment and Restructuring Charges Recognized

$95.5 million

Percentage of Acquisition Price Impaired

52%

Time Elapsed Before Recognized

7 months

Claim to Fame

That was quick!

Source: SEC filings.

OMGPOP had but a single popular title, its Pictionary knockoff Draw Something. Zynga saw social potential in the game that no one else did, so it snapped up the company for a lofty $183.1 million. Interest in the game quickly faded and Zynga was forced to impair 52% of its total acquisition price just seven months after the deal closed.

Cisco and Pure Digital
Networking giant Cisco has always been out of touch with the consumer market, and its 2009 acquisition of Pure Digital is the embodiment of that. Pure Digital was the maker of the then-popular Flip handheld video cameras.

Acquisition Price

$590 million

Goodwill and Intangible Assets Recorded

$490 million

Impairment and Restructuring Charges Recognized

$262 million

Percentage of Acquisition Price Impaired

44%

Time Elapsed Before Recognized

2 years, 1 month

Claim to Fame

That was misguided!

Sources: Cisco, SEC filings, and The Wall Street Journal.

About two years later, Cisco decided to axe the division altogether instead of sell it to recoup some of its money. It was also bad timing since photo and video performance capabilities built into mobile devices were dramatically improving around this time, to the point of disrupting stand-alone cameras.

Microsoft and aQuantive
Back in 2007 when Microsoft had high hopes of challenging Google in online ads, it decided to pick up aQuantive for a mind-boggling 85% premium. Google had just acquired DoubleClick and Microsoft clearly felt it needed to step up.

Acquisition Price

$5.9 billion

Premium Paid

85%

Goodwill and Intangible Assets Recorded

$6.2 billion

Impairment and Restructuring Charges Recognized

$6.2 billion

Percentage of Acquisition Price Impaired

105%

Time Elapsed Before Recognized

5 years, 3 months

Claim to Fame

That was all of it!

Sources: SEC filings and The Wall Street Journal.

If you're wondering why Microsoft initially recorded more goodwill and intangibles than the total purchase price, it's because it also took on about $1.1 billion in liabilities as part of the deal, but its net cost was $5.9 billion that was paid in cash. Microsoft finally admitted aQuantive didn't boost sales like it had hoped.

HP and Palm
Former Hewlett-Packard CEO Mark Hurd thought that buying struggling Palm would be a good way to tap into mobile device growth. HP would take over the webOS platform that had gotten a lukewarm reception.

Acquisition Price

$1.8 billion

Premium Paid

23%

Goodwill and Intangible Assets Recorded

$1.3 billion

Impairment and Restructuring Charges Recognized

$3.3 billion

Percentage of Acquisition Price Impaired

183%

Time Elapsed Before Recognized

1 year, 7 months

Claim to Fame

That was embarrassing!

Sources: SEC filings and The Wall Street Journal.

After Hurd was ousted in a high-profile sexual harassment scandal, his successor, Leo Apotheker, didn't agree with Hurd's vision for Palm. A year later he would axe the webOS hardware business and set up the aforementioned Autonomy debacle. Apotheker was quickly shown the door and Meg Whitman was named CEO just in time to recognize the $3.3 billion in charges related to killing webOS.

Sprint and Nextel
This one was more of a merger than an acquisition, but it was quite a whopper. Sprint Nextel was formed in 2004 when the two joined forces in a $37.8 billion deal that was expected to generate billions in synergies.

Acquisition Price

$37.8 billion

Goodwill and Intangible Assets Recorded

$26 billion

Impairment and Restructuring Charges Recognized

$29.7 billion

Percentage of Acquisition Price Impaired

79%

Time Elapsed Before Recognized

3 years, 3 months

Claim to Fame

That's a ton of money!

Sources: Sprint and SEC filings.

The merger has proven to be an absolute disaster in the years since. Even today, Sprint is the financially weakest of the top three carriers and it continues to wind down Nextel's legacy iDEN network.

Back to the future
Several notable tech deals in recent memory stand out as potential impairment candidates in the near future.

There was Microsoft's $8.6 billion acquisition of Skype, overpaying even more than eBay did and adding $8.7 billion in goodwill and intangibles. Google's $12.4 billion purchase of Motorola only generated $2.6 billion of goodwill, with most of the rest comprised of patents. Perhaps Facebook's $1 billion buy of Instagram will come back to bite, since Instagram has no revenue and included $572 million in goodwill.

Who will be next to eat a past acquisition with a fork, knife, and side of tears?

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The article 5 of the Worst Tech Acquisitions From the Past 5 Years originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple, Facebook, Google, and Microsoft and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, eBay, Facebook, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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