Most companies no longer grow organically—that is, through innovation, research, and development—but increasingly are acquiring competitors or up-and-coming firms with new products or access to new markets.
Especially during times of economic hardship, cash-rich companies go on a hunting spree to identify new opportunities. In a recession, companies with sagging sales revenues and tenuous cash positions face the greatest risk of a takeover.
Bargain hunting for struggling companies without doing one’s homework, including reviewing the company’s culture, product mix, life-cycle of the product, and the market in which it operates, could backfire, according to a recent study by Knowledge@Wharton (KW), the research arm of the University of Pennsylvania’s Wharton School of Business.
KW says that between 40 percent and 60 percent of all acquisitions fail because companies don’t evaluate risks and benefits carefully.
“Companies need to have a plan as to whether they can integrate relevant knowledge and divest what was holding back the company,” KW said in its report.
Technology Sector Maturing
Wharton professors suggest that technology companies are entering their mature life cycle stage, when organic growth slows and companies seek mergers and acquisitions (M&A).
“The technology industry is evolving. You can see it mature,” said Saikat Chauhdhuri, professor at Wharton, in the KW report.
Andrea Matwyshyn, another professor at Wharton, said that “Tech companies are demonstrating the patterns we see in industries with more longevity.”
According to KW, the technology sector in general is lacking the drive to innovate, is exposed to infighting for power, as well as colliding cultures due to acquisitions and other problems inherent in maturing industry sectors.
“One thing is certain: The acquisitions will persist as the technology industry continues to mature,” KW said.
Companies on the Prowl for Bargains
Sam Palmisano, CEO of International Business Machines Corp. (IBM), said that his company will spend around $20 billion on acquisitions over the next five years, according to KW.
Multinational technology companies including Dell Inc., Hewlett-Packard Co., Oracle, and IBM have traditionally acquired competitors during recessionary times.
Palm Inc. was losing market share over a number of years, and despite innovative developments and approaches, it could not turn around its fortunes. HP jumped in when Palm reported a third quarter net loss of $22 million in March and acquired the company for $1.2 billion. The merger closed this month.
On the heels of Apple Inc.’s iPad tablet computer release, HP said in a July 1 statement that “HP’s global scale and financial strength plus Palm’s award-winning webOS experience, as well as its acclaimed Pre and Pixi smartphone product lines, enhance HP’s ability to participate more aggressively in the highly profitable, $100 billion smartphone and connected mobile device markets.”
Another frequent buyer is commercial software giant Oracle Corp., led by Silicon Valley mogul Larry Ellison. Since 2005, Oracle has bought a combination of 66 product lines or companies that offered database, applications, and server and storage systems. The latest purchase for $94 million was signed in May for eServ Global’s Universal Service Platform.
“Through our acquisition activities, Oracle seeks to strengthen its product offerings, accelerate innovation, meet customer demand more rapidly, and expand partner opportunities,” Oracle said on its website.
Sun Microsystems Inc. reported a $1.7 billion loss in the first quarter of 2009, and its share prices plummeted. In April 2009, Oracle bought Sun when its stock price had dropped to $9.50 per share.
Acquisitions on the Global Stage
“For many years, Asian companies were reluctant to embark on international acquisition as a strategy. They didn’t have the capital or borrowing capabilities to make big purchases,” according to KW.
On the reverse side, restrictions on company ownership in developing markets have made it almost impossible for Western companies to buy into Asian markets.
Today, cash-rich Asian companies are on a buying spree worldwide.
Given economic hardships, the saying goes, beggars can’t be choosers. Economically hard times bring great opportunities. “Asia players are buying into developed markets. When business is going well, companies are more hesitant to be bought,” KW said.
As some Asian governments have eased restrictions in general and on foreign company ownership specifically, American and European companies have also expanded to Asia.
2007 was a hot year for merger-related activities in Asia, with $278 billion in M&A activity. Despite the economic downturn, 2009 saw $625 billion in M&A activities in the region.
India has become a hotbed of merger-related activities, with 300 M&A deals during the first six months of 2010, an increase of close to 70 percent over the past year and a 27 percent increase over the same period in 2009, according to India’s Business Standard.
In June, Bharti Airtel Ltd., an Indian mobile provider, acquired the Kuwait-based Zain Group’s mobile operations in 15 African countries, valued at $10.7 billion. Several top global banks advised Bharti, including Standard Chartered Bank PLC, Barclays Capital, and the SBI Group.
In May, Abbott Laboratories, a U.S. pharmaceutical care company, acquired Piramal Healthcare Solutions from India’s Piramal Healthcare Ltd. (which claimed to be the front runner in India’s pharmaceutical industry) for $2.12 billion to be paid over four years,
“We want to expand in emerging markets, and you can’t be taken seriously without having a strong or dominating presence in India,” said Michael Warmuth, senior vice president at Abbott, in a recent KW article.
Especially during times of economic hardship, cash-rich companies go on a hunting spree to identify new opportunities. In a recession, companies with sagging sales revenues and tenuous cash positions face the greatest risk of a takeover.
Bargain hunting for struggling companies without doing one’s homework, including reviewing the company’s culture, product mix, life-cycle of the product, and the market in which it operates, could backfire, according to a recent study by Knowledge@Wharton (KW), the research arm of the University of Pennsylvania’s Wharton School of Business.
KW says that between 40 percent and 60 percent of all acquisitions fail because companies don’t evaluate risks and benefits carefully.
“Companies need to have a plan as to whether they can integrate relevant knowledge and divest what was holding back the company,” KW said in its report.
Technology Sector Maturing
Wharton professors suggest that technology companies are entering their mature life cycle stage, when organic growth slows and companies seek mergers and acquisitions (M&A).
“The technology industry is evolving. You can see it mature,” said Saikat Chauhdhuri, professor at Wharton, in the KW report.
Andrea Matwyshyn, another professor at Wharton, said that “Tech companies are demonstrating the patterns we see in industries with more longevity.”
According to KW, the technology sector in general is lacking the drive to innovate, is exposed to infighting for power, as well as colliding cultures due to acquisitions and other problems inherent in maturing industry sectors.
“One thing is certain: The acquisitions will persist as the technology industry continues to mature,” KW said.
Companies on the Prowl for Bargains
Sam Palmisano, CEO of International Business Machines Corp. (IBM), said that his company will spend around $20 billion on acquisitions over the next five years, according to KW.
Multinational technology companies including Dell Inc., Hewlett-Packard Co., Oracle, and IBM have traditionally acquired competitors during recessionary times.
Palm Inc. was losing market share over a number of years, and despite innovative developments and approaches, it could not turn around its fortunes. HP jumped in when Palm reported a third quarter net loss of $22 million in March and acquired the company for $1.2 billion. The merger closed this month.
On the heels of Apple Inc.’s iPad tablet computer release, HP said in a July 1 statement that “HP’s global scale and financial strength plus Palm’s award-winning webOS experience, as well as its acclaimed Pre and Pixi smartphone product lines, enhance HP’s ability to participate more aggressively in the highly profitable, $100 billion smartphone and connected mobile device markets.”
Another frequent buyer is commercial software giant Oracle Corp., led by Silicon Valley mogul Larry Ellison. Since 2005, Oracle has bought a combination of 66 product lines or companies that offered database, applications, and server and storage systems. The latest purchase for $94 million was signed in May for eServ Global’s Universal Service Platform.
“Through our acquisition activities, Oracle seeks to strengthen its product offerings, accelerate innovation, meet customer demand more rapidly, and expand partner opportunities,” Oracle said on its website.
Sun Microsystems Inc. reported a $1.7 billion loss in the first quarter of 2009, and its share prices plummeted. In April 2009, Oracle bought Sun when its stock price had dropped to $9.50 per share.
Acquisitions on the Global Stage
“For many years, Asian companies were reluctant to embark on international acquisition as a strategy. They didn’t have the capital or borrowing capabilities to make big purchases,” according to KW.
On the reverse side, restrictions on company ownership in developing markets have made it almost impossible for Western companies to buy into Asian markets.
Today, cash-rich Asian companies are on a buying spree worldwide.
Given economic hardships, the saying goes, beggars can’t be choosers. Economically hard times bring great opportunities. “Asia players are buying into developed markets. When business is going well, companies are more hesitant to be bought,” KW said.
As some Asian governments have eased restrictions in general and on foreign company ownership specifically, American and European companies have also expanded to Asia.
2007 was a hot year for merger-related activities in Asia, with $278 billion in M&A activity. Despite the economic downturn, 2009 saw $625 billion in M&A activities in the region.
India has become a hotbed of merger-related activities, with 300 M&A deals during the first six months of 2010, an increase of close to 70 percent over the past year and a 27 percent increase over the same period in 2009, according to India’s Business Standard.
In June, Bharti Airtel Ltd., an Indian mobile provider, acquired the Kuwait-based Zain Group’s mobile operations in 15 African countries, valued at $10.7 billion. Several top global banks advised Bharti, including Standard Chartered Bank PLC, Barclays Capital, and the SBI Group.
In May, Abbott Laboratories, a U.S. pharmaceutical care company, acquired Piramal Healthcare Solutions from India’s Piramal Healthcare Ltd. (which claimed to be the front runner in India’s pharmaceutical industry) for $2.12 billion to be paid over four years,
“We want to expand in emerging markets, and you can’t be taken seriously without having a strong or dominating presence in India,” said Michael Warmuth, senior vice president at Abbott, in a recent KW article.
