M&A:

THE
ONE
THING
YOU
NEED
TOROGER
GET
By:
L.
MARTIN
RIGHT
BY: IVANI
KATAL

FAILURES

2015

MS wrote off

96%

of value of handset

business it had acquired from Nokia for $

billion

7.9

2012

Google has unloaded for $2.9 billion the

handset business it bought from Motorola for

$12.5 billion

2012

$8.8 billion of
its $11.1 billion Autonomy acquisition
HP has written down

2011

News Corporation sold MySpace for a mere

$35 million
million

after acquiring it for

$580

SUCCESSES

1997

Apple purchased NEXT for $404 million

and set the stage for the greatest accumulation
of shareholder value in corporate history

2005

Google purchased Android for $50 million

and gave it the biggest presence in Smartphone
operating systems

951-1996

Warren Buffetts rolling acquisition of GEICO

created
asset

Berkshire Hathaways

cornerstone

These are
just
exceptions:
Typically 70%
90% of
acquisitions
are abysmal
failures.

WHY?
WHAT REALLY

HAPPENS

When a company uses an acquisition to enter an

attractive market, its in

take

mode.

Companies that focus on what they are going to

get from an acquisition are less likely to succeed
than those that focus on what they have to give
it.

Microsoft and Google wanted to get into

phone

smart

hardware

HP wanted to get into

data analytics

enterprise search

News Corporation wanted to get into

networking

social

and

So how exactlydoes and

acquirergive to an
acquisition?

An acquirer can improve its targets competitiveness

in four ways:

by being a
smart
provider
of
growth
capital

by
providing
better
managerial
oversight

by

transferring

valuable
skills

by sharing
valuable
capabilities

By being a smart provider of growth

capital
Byacquiring smaller companies and funding

their growth in a way that the

capital markets dont(good in less
developed capital markets),

Bybringing intellectual capitaland

growth resources, and
By facilitating the roll-up of a fragmented
industry

inthe

economies.

pursuit of scale

One of the biggest deals of 2015 was the proposed $68

One of the biggest deals of 2015 was the proposed $68
billion merger and subsequent three-way split of DuPont
billion merger and subsequent three-way split of DuPont
and Dow, which resulted from relentless activist pressure
and Dow, which resulted from relentless activist pressure
on DuPont.

Provide Better Managerial Oversight

Another way to give is to provide [a

strategic
direction, organization, and
process disciplines.
target]

withbetter

He highlights examples of acquirers who

havestruggled and succeeded noting that
Better management ismore likely to

result from PE buyouts.

Super
Super successful,
successful, high-end,
high-end, Europe-based
Europe-based
Daimler-Benz
Daimler-Benz thought
thought itit could
could bring
bring much
much better
better
general
general management
management to
to modestly
modestly successful,
successful,
midmarket,
U.S.-based
Chrysler
and
learned
a
midmarket, U.S.-based Chrysler and learned a
painful
painful$36
$36 billion
billion lesson
lesson

EVOLVES
TRIBUTE AROUND:
SUCCESS TO:
4PSPEOPLE
ANAHER BUSINESS SYSTE
PLAN
PROCESS
PERFORMANCE
DANAHER
DANAHER

Since
Since its
its inception,
inception, inin 1984,
1984, itit has
has made
made more
more than
than
400
acquisitions
and
has
grown
to
a
$21
billion
400 acquisitions and has grown to a $21 billion
company
with
a
market
capitalization
above
$60
billion
company with a market capitalization above $60 billion

Transfer Valuable Skills

The third way to give in an acquisition
is by transferring a specificoften
functional

skill,
asset, or
capability to it directly, possibly through
the
redeployment of specific

personnel.

Martin uses the example ofPepsiCo acquiring Frito-Lay

Martin uses the example ofPepsiCo acquiring Frito-Lay

and
and transferring
transferring the
the skills
skills for
for running
running aa direct
direct
store
logistics systema key to competitive
storedelivery
delivery(DSD)
(DSD) logistics systema key to competitive
success in the snack category.
success in the snack category.

Share Valuable Capabilities

Rather

than

transfer

skills

as

discussed, the fourth way to give is

to share.
A good example is Procter & Gamble
whoshares its customer team,

media buying capabilities, and

even its powerful brandin some
instances.

Microsoft shared its powerful ability to sell the Office

Microsoft shared its powerful ability to sell the Office
suite to PC buyers by including Visio software in Office
suite to PC buyers by including Visio software in Office
after it acquired the company in 2000 for close to $1.4
after it acquired the company in 2000 for close to $1.4

billion.

Has Facebook shared valuable

capabilities?

N
O

It
could
have
combined
WhatsApp
and its own application,
Messenger, but it has
kept them completely
separate.

3 KEY TAKEAWAYS
THE PROBLEM
Although M&As are a tempting
strategy for fast growthand
psychologically gratifying
for CEOsmost of them are
extremely expensive mistakes.

WHY IT HAPPENS Companies

tend to look at acquisitions as a
way of obtaining value for
themselves access to a new
market or capability, for
example. But if you spot
opportunity in a company,
others will too, and the value
will be lost in a bidding war.

THE SOLUTION Look for ways to give

value to the acquired company rather than
take itby being a smarter provider of
capital, offering better managerial
oversight, transferring a skill, or sharing a
resource. These approaches have been
behind the handful of deals that have
succeeded.

THANK YOU