Mergers and acquisitions
Method of Development
When two companies are undertaken for Mergers and Acquisitions, the companies' has main objectives to achieve certain strategic and financial objectives. According to Gilman & Chan (1990), the mergers take place when two companies are mutual for to achieve same objective and goals. They also stated that the acquisitions takes place when larger company takes over or purchasing small company to enter new or existing market to achieve certain strategic goals. For example, the larger company buys all the assets and liabilities as well as create shareholder value. Thus, Mergers and acquisitions happened because of an international measurement in order to global economy addition and removal of trade barriers. Google has made number mergers and acquisitions since 2001; the following is the list of main mergers and acquisition:
- Google Acquired Keyhole, Inc in 2005, the acquired company provides 3-D view of the earth, called Earth viewer but Google has change the name of Google Earth.
- In 2007 Google bought YouTube for $1.65 billions which was one of biggest acquisitions.
- Another acquired happen with Double Click for $3.1 billions in the same year on 13th April. Double click's core business are advertising agencies and Web Publishers.
- Grand Central for $50millions, now it is known as Google Voice
- The first public company, which is software maker for $106.5 million bought by Google in 2009.
- Aardvark is a social network search engine which is bought by Google for $50 millions.
The main Mergers and Acquisitions for Dell are follows:
- The first acquisitions for Dell's was acquiring Converge Net Technologies
- Dell was acquired Alienware in 2006 because of to introduce AMD processor in the computer.
- Dell Inc. has acquired 10 companies as of 2009 and from 1999-2000 the company acquired 4 companies.
- In January 2008, the company had largest acquisition was with Equal Logic, the Equal Logic based in New Hampshire in the UK. The acquisition deal was worth of $3.9 billions.
However, the main reasons for Mergers and Acquisitions are as follows:
Stages in mergers and acquisitions
Increase Market Share
The mergers mania provides greater market share and outperform the competitors. The immediate objectives for Mergers and Acquisitions is to expansion and growth of assets as well as increase of market and sales share which provides maximization of shareholder's share. In addition, according toWhite., (2000) the fundamental objective of the Mergers and Acquisitions is to enhancement of shareholder share and creating value and wealth.
Growth of Corporate
The Corporate Growth is the obvious reason to have Mergers and Acquisitions between the companies. For example, the takeover of You tube by Google was one of significant acquisitions in recent history. The $1.6 billions takeover was excellent decision for both companies. According to Google, both the companies will operate independently as well as maintain and recognize by their own brand. Moreover, the M&A was given phenomenal growth for both companies as it was proven by Daily Traffic Trend (html:http://188.8.131.52/uk.f233.mail.yahoo.com/ya/securedownl)
Economics of scale
The Mergers and Acquisitions can enhance profit and reduce per unit cost, in which enable the companies to enjoy economically. In addition, this method is able to cutting costs, reduces costs and also provides competitive advantages. For example, the acquisition of Software maker On2 by Google has provided $106.5 millions additional revenue and helps to reduce costs.
Mergers and Acquisitions can help the product portfolio to be widened through diversification. According to Mckinsey(1980), Mergers and Acquisitions have been successful through diversifications, the survey showed that 800 companies in the USA had successful because of they have well diversified their acquisitions.
Innovation in Technology
Mergers and Acquisitions are enabling to bring innovation in corporate technology, which bring innovative new products. For example: the acquisitions of Converge Net Technology provides integrated into both companies technology in their product line. Furthermore, the acquisitions of Advance Micro Devices by Dell have enabled to add new items in their high end product line (http://online.wsj.com/article/SB124466926).
Add value through synergies
Mergers and Acquisitions can assist to connect possessions and switch the existing assets to add value and minimize the rival powers by acquiring assets to block the entry into new market. For example: the Dell has more than $9 billions cash reserve and in addition they wanted to more cash through M&A. The chief Executive of Dell, Mr Michael Dell (2010) stated that they had already hired more high-profile M&A executive form rival Int Business Machines Corp as the Dell wanted to more M&A for add value through synergy (http://online.wsj.com/article/SB124466926594003).
Mergers and Acquisitions can create balance global and local demand through new and existing product portfolio. According to Devine, (2002), the internationalization of product portfolio can bring huge competitive advantages within the industry. In addition, Fang (2006), Dell's main motivation to globalization their product portfolio through Merger and Acquisitions. For example, Google and Dell both companies are world recognize corporation as it has partly done by the Mergers and Acquistions.
Mergers and acquisitions - a success or failure
'Creative and destructive' these two result can achieve from the Mergers and Acquisitions because the M&A are like atomic reactions, it can be burst within any kind of form such as creative and destructive(Devine, 2002). There are a lot of study shows that it is very difficult to make certain that M&A have provide any long lasting financial guarantee but still it has provided good financial value. According to Goldberg (1983) and also Arnold, (2005), stated that M &A could be a disappointing marriage. The success of the Mergers and Acquisitions are as follows:
You tube serves 100 million videos per day which cost is 3.65 cents per video. So therefore it could provide both companies profitability. Moreover, the acquisition of storage maker Equal Logic by Dell could benefit them around $1.4 billion as well as it could earn them significant revenue (http://www.infoworld.com/t/mergers-and-acq).
Innovation in Technology
There is huge success when Dell acquired security vendor Kace, the Kace is system management Appliance Company. The acquisition is able to provide a design in technology which can improve in inventory management (Shah., 2010). Moreover, the 3-D view of the earth develops by Keyhole Inc, which is acquired by Google. As a result millions of internet server can able see the new innovative technology gave 3-D view of the Earth.
Google now handles almost 84.7% of all serarch request on the web which is operates globally, this success came because of partnership with different companies such as Yahoo, AOL and CNN.
Reasons for failure of mergers
The acquisition of You tube by Google could lose You tube around $500million in the year of 2010 (www. telegraph. co.uk/onilne).
Problems with customer service
There was a problem when Dell had acquired Alienware in 2006, but the problem rose high with the customer service. The call waited at the customer service around 45%.
Some of the reasons for failure can be identified:
- Problems in post merger activities;
- Communication: lack of communication between the two companies management
- Commitment: lack of commitment within the staff after merging the companies
- Inefficiency and reducing level of productivity if there is improper match
- Uncertainty, suspicion and anxiety atmospheres at the work place
- Leadership: leadership problems in merging companies
- Lack of positive approach and co-ordination
- Culture barriers
- Loosing job among the local community which can cause angerd in the local community.
- Staff Reduction locally
Actions my have needed to be taken
Google and Dell need to take initiative to overcome with cultural problems. For Example, recent problems with China government about Google's attack. Google has agreed to censor its contents by the authority when they have launched in China to compete with China site Baidu. The Google needs to take action by negotiate with the China authority to resolved problems. Secondly, Dell and Google needs to take action about Research project (R&D) to develop more innovative technology in their operations. Morevoer, they can recruit more local people when they have acquired another company as well as they should attend in the social program such as charity, education program.
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