The growth-through-acquisitions strategy of AT&T stock ended with the spinoffs of DirecTV and WarnerMedia. But not all growth-through-acquisition plays turn out poorly. Just look at Warren Buffett's Berkshire Hathaway, which built a successful conglomerate using the strategy.
Tech companies currently employing the strategy include Palo Alto Networks, Accenture and Salesforce. Their acquisition sprees might turn out better than AT&T's.
But AT&T stock paid a steep price for its failed strategy. T stock has plunged 50% since the start of 2020.
AT&T spun off satellite TV broadcaster DirecTV to private equity firm TPG Capital in August 2021. And, on April 5, it spun off WarnerMedia, which merged with Discovery to form Warner Bros. Discovery.
AT&T stock now reverts back to being a telecom services provider, albeit with a smaller dividend.
Palo Alto Networks Expands Cybersecurity Portfolio
Cybersecurity firm Palo Alto Networks has expanded from its roots in the network firewall market through acquisitions. It has spent roughly $3.46 billion on purchases since 2018.
Investors have applauded the company's growth-through-acquisitions strategy. PANW stock has shot up 154% since the start of 2020.
"Palo Alto Networks was primarily a firewall vendor 3 (or) 4 years ago, but it has transformed itself to become one of the most comprehensive players in the market today, from a product standpoint," Janice Quek, equity analyst at CFRA Research, said in an email.
In June 2018, Palo Alto brought in Nikesh Arora as chief executive. He had been a top executive at Alphabet's Google and at SoftBank Group.
Through acquisitions, Palo Alto Networks has expanded into cloud computing-based services, endpoint security and vulnerability management. Endpoint tools detect malware on laptops, mobile phones and other devices that access corporate networks.
PANW Stock: Balance Sheet Still Strong
In addition, Palo Alto Networks pushed into a market called Secure Access Service Edge, or SASE. Those security tools support distributed workers and branch offices.
"After its current CEO joined the firm, the company embarked on a series of acquisitions so it could bring an expanded line of solutions to the market faster than internal R&D would be able to," Quek said.
Purchases included Demisto, Expanse, CloudGenix, Evident.io and Twistlock.
Quek noted that Palo Alto Networks still has $3.34 billion in cash and short-term investments on its balance sheet. So, its acquisition spree may not be over.
At RBC Capital Markets, analyst Matthew Hedberg said in a recent note: "When screening M&A candidates within cloud security, management exclusively looks for products which can be consolidated in the Prisma Cloud and Cortex (artificial intelligence) platform. As such, we feel Palo Alto is well-positioned to offer best-of-breed capabilities through a platform approach."
ACN Stock: Acquisitions Accelerate
Meanwhile, Accenture's acquisition spree has accelerated. The Dublin-based global tech consulting and services company continues to make acquisitions to expand digital, cloud computing and cybersecurity products. It also has invested in artificial intelligence and blockchain technology.
According to a Baird report, Accenture made 46 acquisitions for $4.17 billion in its fiscal 2021, which ended in August. That marked Accenture's most acquisitions since fiscal 2017. That year Accenture spent $1.7 billion on purchases, Baird said.
Accenture acquisitions have added about 2% to 4% in annual revenue growth the past few years, Baird said. Accenture has forecast about $4 billion in acquisitions for fiscal 2022.
"Since March 2020, we have invested $7 billion in acquisitions compared to $2.1 billion in the two years prior," Chief Executive Julie Spellman said at the company's investor day on April 8.
She added that acquisitions have enabled Accenture to specialize in markets such as the automotive industry.
Accenture has far outspent rivals such as IBM and Cognizant Technology Solutions on acquisitions.
"We view Accenture's tuck-in capabilities as one of the company's key competitive differentiators, as it enables the company to rapidly pivot into high-growth service lines," MoffettNathanson analyst Lisa Ellis said in a recent report.
Still, some analysts question "organic growth" — growth sans acquisitions — at companies such as Accenture and Salesforce.
Salesforce Stock: Slack Biggest Deal Yet
It doesn't seem to go bother Salesforce, which recently made its biggest buy ever. Salesforce last year acquired Slack Technologies, a workplace collaboration software maker, for $27.7 billion.
That eclipsed its 2019 deal, in which Salesforce picked up data analytics firm Tableau Software for $15.7 billion in an all-stock deal.
In 2018, Salesforce bought MuleSoft for $6.5 billion in cash and stock. And Salesforce bought e-commerce platform Demandware in 2016 and Exact Target in 2013.
The acquisitions have enabled Salesforce to expand from its roots in customer relationship management software into marketing, e-commerce and other markets.
Analysts generally give Salesforce solid grades for integrating acquisitions into its software platform. Growth slowed at the MuleSoft business last year, though.
And, the jury is still out on merger synergies with Slack. Salesforce stock has retreated 22% in 2022 amid a pullback in software growth stocks.
AT&T Stock: Acquisitions Started With SBC
To be fair, AT&T's growth-through-acquisition strategy had a good run before its missteps with DirecTV and Time Warner.
SBC Communications, AT&T's forerunner, started gobbling up local phone companies in 1996. Then it acquired "Ma Bell" — wireless, business and long-distance call provider AT&T — in 2005. SBC then rebranded itself as AT&T. Buoyed by iPhone sales, the new AT&T posted a few good years, at least for dividend-minded investors.
But with wireless services growth slowing, AT&T bought DirecTV for $48.5 billion in 2015. It acquired media giant Time Warner for $85 billion in 2018.
At JPMorgan, longtime telecom analyst Philip Cusick upgraded AT&T stock to overweight on April 11.
"A more communications-focused company, AT&T now looks more like Verizon than it has in years after shedding the distractions and revenue drag of a declining satellite video business and the capital obligations of the Warner/HBO media businesses," he said.
Meanwhile, while AT&T stock flubbed its growth-by-acquisition strategy, some tech giants have fared better. In general, they've made small acquisitions.
According to Dealogic, Microsoft spent $25.7 billion on 56 purchases in 2021. Google parent Alphabet spent $22 billion on 22 acquisitions. And, Amazon.com spent $15.7 billion on 29 deals.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
