Question

Acquisitions occur frequently in the world of business. Companies, such as Omnicom, Wells Fargo, Medtronic, Johnson & Johnson, Pfizer, and AT&T, incorporate strategies in making acquisitions. Do you have some ideas of what the key ingredients are to make them successful and why many of them are not? Can you think of why some companies seem to do well with acquisitions? Finally, in addition to the previous questions, please provide an example of one successful acquisition and one failed acquisition that we have seen happen over the last decade.

Answer 1

Some of the renowned identified rules for successful acquisitions are:

• First, know what the buyer can do for the acquired company, not visa versa. Money is not enough. Management expertise, market survey and technology are all more critical.

• Second, there must be a common core of unity between the two companies. They must share a common culture through experiences, expertise and common language.

• Third, an acquisition can only be successful if the buyers respect the product, markets and customers of the new company, and there is a “temperamental fit.” Pharmaceutical researchers and biochemists are concerned with health and disease. Pharmaceutical companies acquiring cosmetic firms made the serious staffs of the former sour on the frivolous products, markets, customers and researchers of the latter.

• Fourth, the acquiring company must provide top management within a year of purchase because they are not buying management. Integrating the two companies might work, but not always. Warren Buffett, an investor, leaves the management in place of companies he acquires; he rarely intercedes in the operations and lets them run practically as stand-alones.

• Fifth, management people in both companies receive substantial promotions from one company to the other. This creates the vision that their personal opportunities are enhanced.

Some companies seem to do well with acquisitions because of the following features :

1. Symbiosis

2. Getting ahead of risk

3. Preservation

4. Holding

5. Reshaping the consumer experience

6. Market Breakthroughs

7. Capability Upgrades

Failed Acquisition

AOL and Time Warner

Time Warner and AOL merged at one point Among the merger and acquisition failures that occurred, it wasn’t so successful for these two companies. During the days of the dot-com bubble, a $164 billion merger of AOL and Time Warner happened and both old and new media companies connected into a potential powerhouse. As great as it sounded, it turned into a giant flop.

When the dot-com bubble bursted, the mega-company reported a $45 billion write-down in 2003 and then a $100 billion yearly loss. And around 2009, Time Warner completely withdrew itself from the internet and back into its own entity. Just when things were going great, the bubble had to burst.

Successful Acquisition

Amazon Buys Whole Foods

Earlier this summer, e-commerce giant Amazon announced that it would be buying high-end organic grocery chain Whole Foods for $13.7 billion; the deal officially closed at the end of August. While the acquisition has been off to a rocky start, it gives Amazon hundreds of physical stores and provides the company a strong entryway into the competitive grocery and food industry.