Mergers and Acquisitions - Notes to Self

Mergers and Acquisitions (M&A )can be divided into two types. 

One is Financial and another is Strategic.

Financial M&A is done for financial reasons like increase in cash flow or to get some quick cash. This type of M&A is fairly straightforward.

A Strategic M&A happens for one or more than one of the following reasons. I call these as the benefits of M&A

• Add a New Product Line
• Add additional facilities
• Enter a new market
• Gain expertise in a new area
• Add Intellectual Property
• Upgrade Capability
• Breakthrough into a market
• Reshape customer experience
• Save time and Long Learning curves
• Take advantage of synergies

Case Study: Google’s acquisition of Motorola Mobility in 2011 in an all cash deal.Background: Google was fighting Patents Cases filed by Apple and Samsung, a major cell phone manufacturer was releasing Android with Samsung’s skin which led to bad reviews for Android due to poor user experience . It was in this scenario that Google acquired  Motorola Mobility in 2011 in an all cash deal. This a typical example of strategic M&A. It got 20,000 mobile patents and also a foothold in the mobile phone manufacturing division, an intention made clear by by the Moto-X phone and the strong reception it got. 

In one single stroke, it had got phone manufacturers who were using their own skin on top of Android which resulted in degraded performance and hence poor feedback on android to fall in line. The good reception Moto X got also has created a demand for stock android phones that is borne out by many manufacturers offering one. It also has resulted in the successful launch of of Pixel Line of Android Phones, where Google is in control of both Hardware and Software and hence the holistic User Experience.

If we understand that Google didn’t have any foothold in Mobile Device manufacturing prior to this acquisition and didn't start from scratch on device manufacturing , but used this acquisition to successfully get a break through, we also understand the reason this is called an example of a successful strategic M&A. 

This deal and its aftermaths ensured that there were no other operating systems and Android remained a credible alternative to iOS . Through this Google also ensured that it didnt have to worry about its advertising revenue , a major revenue source for Google. The deal also ensured that Google successfully survive Apple’s patent attack on it.

Once Google ensured that Android will be the OS for mobile platforms, it retained all the patents and only sold off Motorola name to Lenovo. And Lenovo did it because the Motorola brand name helped it to get an entry into US Market. By doing this, they ensured that their focus was back on Android and anything that they do will only to further the interests of Android OS and the user experience ( Pixel Phones are a classic example for this ).

IBM’s recent announcement of its intention to acquire open source cloud provider Red Hat for $34 Billion is another example of strategic acquisition. Experts said IBM’s acquisition of Red Hat opens a new dynamic in the cloud wars between IBM, Google, Amazon and Microsoft. They also said it gives IBM added muscles in the enterprise hybrid cloud space, opens up a large conversation around containerized apps and micro-services infrastructure. only time has to tell how successful this acquisition will be a success and if that happens, you can be sure that it would be due to one of the reasons mentioned below.

We understand that the Risks associated with M&A can be categorised into the following

• Deal valuation
• Operations Team
• People and Culture Issue

This is borne out by the fact that the top Risks of Mergers and Acquisitions are the table given below*

Rank	Specific Risk	Category
1	Overpaying for deals	Deal valuation
2	Insufficient operational diligence	Operations team
3	Maintaining strategic clarity and focus	Operations team
4	Current valuations	Deal valuation
5	Culture assimilation challenges	People/culture issues
6	Fuzzy growth strategy or specific deal rationale	Deal valuation
7	Employee anxiety, morale, and/or engagement issues	People/culture issues
8	Limited access to target company	Deal valuation
9	Underestimation of time and resources required for synergy	Operations team
10	Insufficient financial due diligence rigor	Deal valuation
11	Underestimation of integration work	Operations team
12	Synergy capture not a priority for operating team	Operations team
13	Target company management team operating capability	Operations team
14	IT infrastructure capability, transition costs	Operations team
15	Inconsistent M&A planning and execution	Operations team