Citrix has grown to a $3 billion company driven by approximately fifty acquisitions over the past decade since it went public, enjoying a comfortable 14% CAGR. Why did their senior vice president tell the January 14th Boston breakfast meeting of the Association for Capital Growth that “a significant number of acquisitions have failed from a financial, strategic and talent prospective”?
The answer, according to Tony Gomes (who is also chief legal compliance officer and secretary of Citrix) is that only a few succeeded, but these few were critical. He also noted that, with some assistance from activist investors (with whom Citrix rapidly reached accommodation in order to improve company operations), Citrix is taking a “pause” to focus on its strategic core businesses and providing best service to its customers, while undertaking a couple of spin-offs of ancillary businesses.
What do you do if an acquisition does not live up to expectations? One approach is to use the acquired management and technology team to change direction. Another is to divest quickly, not deterred by loss of sunk costs; the strategic considerations for divestiture trump the pricing.
How does Citrix approach the integration of its numerous acquired companies, which by definition are smaller and perhaps more entrepreneurial? There are two possible approaches: first, you make sure the team stays together by insisting upon three year retention agreements bolstered by financial incentives. Second, for a while Citrix sometimes simply does not integrate the acquisition, leaving it as a free standing operation (particularly for a period necessary to refine a particular product).
Additional take-aways included: it takes five years of further investment in order to successfully build out an acquisition until it scales; as part of due diligence, an acquiror should determine if its own sales force believes that it can sell the “new thing,” the acid test for which is asking whether your sales team is willing to be subject to a “quota”; activist shareholding is the new normal, and SEC prohibitions limiting communications with shareholders get in the way of company’s being able effectively to deal with shareholders.
I asked Gomes whether “taking a pause” without acquisitions was a tolerable strategy for Citrix, which operates in a fast-moving tech market segment. The answer, with a smile, was: this is just a pause, we need a strategic approach to continued growth and that is likely going to lead ultimately to more acquisitions.
Meanwhile, going from less than $10 million of revenue at IPO to over $3 billion of annual revenue based upon a less-than-perfect acquisition strategy doesn’t seem like bad historical performance.