Dell
hit the headlines of all business media recently with their proposed $67
billion takeover of EMC, making it one of the largest leveraged buyout deals in
history. The chip-maker is not alone in the merger and acquisition (M&A)
scene as Western Digital similarly announced a $19 billion deal to buy out
SanDisk yesterday. With a slew of M&A activities happening, is this
corporate action indeed useful for companies seeking growth beyond a certain
critical mass?
It
may be categorised that successful companies that derived growth from M&A
focused on three key aspects:
- Preserving or enhancing business momentum, particularly in organic growth
- Executing more deals; through a systematic and disciplined approach to more deal discovery
- Translating each deal into more top and bottom line growth
In
order for a successful M&A to be executed, it first needs to be aligned
with accelerating growth. While this sounds like common sense, identifying the
deal archetypes and rationales marks a much complex affair. So what entails?
Expansion of
customer base
- This can help improve scale of offering, reach new geographies or refine value proposition from greater market share
- Existing and new customer opportunities would be a crucial parameter
- A classic example is the combination of various travel sites such as TripAdvisor and Expedia under the broad umbrella of IAC
Complementing
gaps in product offerings
- Undertaking a new company that addresses a gap in existing product or service offering helps strengthen value proposition and sharpens competitive edge
- This is evident in Salesforce’s acquisition of Jigsaw to offer automated processes in its data collection processes
Speed to
adjacency
- It is common for companies (particularly Technology companies as it is a fast-evolving industry) to pursue M&A opportunities in adjacent markets to expand beyond their core offering
- Adobe and Oracle for instance are serial adjacency acquirers where the key to success is the ability to understand core differentiators in targets
Successful
M&A initiatives should be robust and build on the Group’s core business.
The combination of organic and inorganic growth should align the deal rationale
with companies’ pressing growth challenges. This inherently allows companies to
survive amidst the dynamic and competitive industry landscapes and deliver
shareholder value. Conversely, M&A can stifle or disrupt growth should
integration fails or occurs episodically.
What
do you say - deal or no deal?
