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Strategic Acquisition Examples

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Introduction

Mergers and acquisitions have become crucial strategies for many companies, especially when they do not have access to the necessary resources and supplies. Acquisition strategies serve as checklists for company owners to ascertain that all crucial issues are properly addressed, and the possible alternatives considered thoroughly, prior to the mergers. Acquisitions refer to a blend in which a certain company takes over another firm’s operations. This presents companies with favorable and strategic options for attaining economies in their operations, thereby strengthening the competitiveness and competencies of the resulting company. In addition, it opens up other avenues for the company to operate in new markets.

TATA Group Acquisition

The TATA group of companies has been one of the major players in the automobile industry. The group has been engaging in substantial acquisitions to such an extent that it has more than 90 companies in its fold. It has interests in various fields such as tea, automobile, telecommunications, and steel among others. One of its most recent and significant acquisition was in January 2007 when it pulled off the largest takeover in India. It acquired an overseas company called Corus, an Anglo-Dutch steel maker. The acquisition, which cost the group $12 billion, propped the group to a prestigious position as the fifth largest producer of steel in the world. One year prior to the acquisition, the group had acquired NatSteel a Singaporean company, which has a considerable presence in China, Thailand, the Philippines, Vietnam, and Australia.

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Strategic Acquisition Examples

Cisco Systems Inc acquisition of Current Corporation and Monterey Networks Inc

In 1999, Cisco Systems Inc announced that definitive agreements had been reached to acquire the two companies for $7.4 billion in stock. The acquisitions allowed the company to enter a new market, optical transport market, which analysts predicted would be a more than $10 billion market. The acquisitions were considered significant since they broadened the optical product portfolio of Cisco, thereby helping customers to optimize on New World solutions. They also provided the service providers with a fast migration from the conventional circuit-based networks to packet-based networks and New World cells.

There are varied reasons and benefits that companies hope to achieve through the acquisition of other firms. All in all, the acquisitions are aimed at enhancing the competitive capabilities and strengths of the acquiring company.

Acquisitions increase the market power of the acquiring company. The acquisition of the steelmaker by the TATA group increased its market power, propelling it to a pronounced position as the fifth-largest steel producer in the world. This is the same case with Cisco, whose acquisition of the two companies enhanced its position in the market (Sam 2007). This is especially having in mind that Current is a leading next-generation optical transport product developer, while Monterey is a significant player in the innovation of infrastructure-class, optical cross-connect technology used in increasing the capacity of networks at optical networks’ center. With the increased market power, the acquiring companies have enhanced abilities to exploit their fundamental competencies thereby increasing their strengths (Sam 2007). It is noteworthy that the two companies engaged in horizontal acquisitions, where they bought businesses in an industry that was highly related to theirs or even competitors. This has not only allowed the company to optimize its core competence but also to have a competitive advantage in the primary markets.

In addition, the acquisitions have increased the acquiring company’s diversification. In essence, companies have an easy time developing new products and engaging in new ventures, in the currency markets due to market-related knowledge. Acquisitions have become popular as horizontal or related diversification strategies, which enable the acquiring companies to move rapidly into related markets thereby increasing their market power, as unrelated strategies for diversification. Horizontal acquisitions have particularly been found tremendously successful as they contribute immensely to strategic competitiveness (Sam 2007).

Moreover, the acquisitions allowed the companies to overcome the entry barrier in the markets. Barriers to entry are factors that relate to the market and companies in those markets that heighten the difficulty and the cost for new companies to enter those markets. The new companies may, therefore, be required to invest immensely in large-scale manufacturing facilities to ensure that they have economies of scale enabling them to compete with existing companies. They may also need to engage in the massive advertisement in order to overcome brand loyalty enjoyed by the existing brands. High barriers to entry increase the attractiveness of acquisitions. In essence, the two companies have acquired others that already have a significant presence in the industry or markets (Bruce & Walter 1995). This means that they have achieved immediate market access and gained brands that have access to the existing channels of distribution, not to mention the brand loyalty that they command in the market. On the same note, acquisitions increase the speed of the company in the market. It is noteworthy that the acquisitions enable the rapid entry of companies into the markets and is less costly to than developing customer relationship as a new player (Bruce & Walter 1995).

Acquisitions also pose lower risks than developing new products. Entering a new market and gaining a significant return on investment would require considerable time and resources. In the case of acquisitions, their outcomes can be accurately estimated in which case they have a lower risk than developing new products (Bruce & Walter 1995).

Conclusion

Strategic acquisitions have become popular with many companies these days. This is due to the opportunities that they present to companies in enhancing their positions in the market. They increase the companies’ competitiveness and capabilities in the market while lowering the risk involved.

References
  • Sam P. D, (2007). Strategic Acquisitions, Divestment, and Lbo: Global Dealmaking. New York: Booksurge Publishing
  • Bruce R. R & Walter P. (1995). Strategic acquisitions: a guide to growing and enhancing the value of your business. New York: Irwin Professional Pub (Sam 2007)
  • (Bruce & Walter 1995)

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