Some of the bigger ones include
Xerox acquisition of Affiliated Computer Services for $6.4 billion
Pfizer acquisition of Wyeth for $68 billion
Merck acquisition of Schering-Plough for $41 billion
Dell acquisition of Perot for $3.9 billion
Majority of the acquisitions seem to be in the technological and healthcare industry. This is mainly due to the fact that they have a lot of cash on their hands and that they are constantly expanding because the pharmaceutical industry is so lucrative. Particularly with the recent hype about the H1N1 influenza, many companies are vigorously trying to come up with flu vaccines which are the major money booster for the upcoming year. Naturally these small companies are acquired to boost the profits of the bigger companies like Pfizer and Merck.
On the other hand, in the world of technology, everyone seems to be acquiring small companies which have been focusing on providing IT services to the consumers. These are extremely profitable and have a lot of potential which will be unravelled in the future. It is said that this aspect of IT business will be worth up to billions in the future. The main reason behind this rise in the demand for services is that consumers want advice and outside help for their programming and consultations on the applications. People have become so lazy that they are constantly reliant upon external help so this is probably the best time to serve them all. IBM has already noticed this trend about two decades around, they were one of the first pioneers in this industry and they are still going strong. With the recent introduction of using DNA as an ingredient to boost the speed of processors, IBM is definitely going to take up more market share when the product is out.
While merging and acquisitions are great as it helps the companies to expand their market share and their reach on various countries across the world, they have to be mindful of the possible repercussions that might haunt them.
As mentioned in Good to Great by Jim Collins, it is great to have acquisitions as it obviously broaden the scope of a company and expose it to many more opportunities out there in the market. Conversely, if one acquires abruptly just to boost the profit sales and to boost their scope in terms of diversification, they might be committing suicide in the long run.
A few reasons explain this.
First, you do not understand the company you acquire because of the differences in the value systems. It’s just value systems, we can easily change it you might say. But you have no idea how important the value system is to the employees. In most great companies, the employees’ values are well-aligned with that of the company’s through many discussions and working together and the understanding of each other. If you simply change it to adapt to your own, you might as well fire all the employees who belonged to the acquired company because they will never be able to relate to the new values simply because they were not set by them.
Well, a lot of companies tend to layoff a huge bulk of employees because of this problem. But then it leads to another problem again. If you fire these employees, then you are de facto firing people who know the operations of that company inside out. Without them, you are simply starting from scratch and starting with such a huge company is suicidal because a wrong move is as good as smashing the company into bits and pieces in today’s competitive market. There is no time to slowly experience and pick up new things in the acquired company. You need the old employees for the acquired company to still function properly even after acquisition.
So, isn’t this a major conundrum? To keep your own values is equivalent to firing the old employees, and to fire them is equivalent to throwing away your acquired company because you can’t cope alone without them. Well, the synergistic solution here is to keep these employees and integrate them successfully into your own company along with the altering of the value system to cater to both the new and the old employees. Operations-wise, I’m pretty sure both companies are pretty much on the same field but values-wise, it can be a huge problem. If at the end of the day, their values do not coincides, it is better to let go of the acquired company before many more problems pop up.
This might sound enigmatic but in actual fact, there are many more problems which the company face during acquisition. It is really not easy.
Credits -bizzia, -gdjacobs, -egeszseg-abc, -msdn
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