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Apple Headquarter

Nearly each week, we can hear about merge or acquisitions of companies through the media. The acquisition race seems to be unavoidable if you want to develop or preserve a company or your business. Really? Everybody does not seem to agree with this fact. It is true, with Mr. Peter Mandelson, First Secretary of State in U.K., who declared in “The Guardian” that it is not a secret to say that during these last twenty years, the fusions and acquisitions did not create value on a long term basis, except for consultants”. Mr. Mandelson said these words in the context of the Cadbury takeover by Kraft.  Is it true or is it wrong?

As financial consultant, I was confronted with some business cases where the supposed financial setting-up did not produce the expected results, and finally represented a charge and not a benefit for the corporation, because the business was not running as expected or because some legal or tax rules changed. Was it predictable? Difficult to say, but a conclusion which could be done is that financial or business structure can produce positive effects, if we take all the parameters into accounts, and if these do not change afterwards.

Each business case is different. Most of companies are announcing merges or acquisitions because they found synergies between both businesses. Normally, when a company is acquiring another one, she is acquiring or consolidating business segment, new customers. We could believe that normally, one plus one makes two. There is of course some jobs cutting in order to suppress duplicate functions, but what we notice sometimes, is a lot of people laid off. In this case, it seems that the goal of such acquisition is purely for financial purposes.

Are the acquisitions an absolute necessity in order to survive in a competitive environment? This kind of operations arises always a level of risk, and the history shows sometimes these operations as unsuccessful. General motors for instance, acquired other automotive marks like Saab, Daewoo. We know what happened to this corporation. To take another example in the automotive industry, the merge between Daimler and Chrysler in 1998 was not a success and the two entities demerged in 2007. Where was the mistake? To big to fail does not seems to be a reality, but maybe to big to be managed with short term view is a good answer.

Is the size of a company an asset to stay alive? Is the size the only criteria to maintain or increase the revenues? Let’s talk about companies which make some acquisitions for strategic reasons, which are operating in businesses where they have not the most important market share. If we take the example of Apple Inc, this company has a much lower market share of the computer industry, compared to the other computer manufacturer running with Microsoft Windows operating systems. But why this company is still competitive and why the Apple products are still successful? A part of the answer is in the question. Apple is always focused on the product development. Apple creates hardware with original design and efficient technology. But on top of creating quality products, Apple builds a brand image. When you buy an Apple laptop, you do not buy only a computer, you buy a concept, a philosophy. In one word, Apple is innovating on an ongoing basis. Innovation means that you have a long term vision and that you need to have ideas or project in advance. The innovation is probably the best guarantee you have to get a sustainable business. It is probably why a slogan of Apple is “Think Different”.

It should be wrong to conclude that acquisitions are useless operations, but they have to be done in a long term perspective, which is a difficult exercise in a fast changing economical environment. Let’s think that maybe quality is still better than quantity.

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Written by Eric Saint-Guillain

March 31, 2010 at 21:15

Posted in Business

Tagged with , , , ,

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