In recent months, some of the nation’s biggest names were involved in some major acquisitions. In the tech industry, it is an almost daily occurrence, albeit that some of them may encounter a ruling of a federal judge that it violates anti-trust laws. You may not have heard of all of these high-tech names but here is a sample of just a few acquisitions in the high-tech field: Salesforce to acquire Tableau for $15.7 billion; Google to acquire Looker for $2.6 billion; HPE to acquire Cray for $1.3 billion; Apptio to acquire Cloudability; ServiceNow to acquire Appsee; Pluralsight to acquire GitPrime for $170 million; CloudBees to acquire Electric Cloud for an undisclosed amount; and so forth. Most of these acquisitions are due to a dominant company in high tech that is seeking to round out its dominance in an area where it is weak.Take for example Google’s acquisition of Looker. Google has been moving forcefully into the business analytic arena and Looker fits the bill. It is a business intelligence software and big data analytic platform that helps explore, analyze and share real-time business analytics. In most cases an acquisition of this sort makes a great deal of sense, since in one way or another there is synergy between the acquiring entity and the acquired business. All may be well in these acquisitions until a judge sees a monopoly in the making, which thwarts competition and hence is a bad thing for consumers.
Healthcare is another area that has seen many mergers and acquisitions in recent years. On November 28, 2018, CVS Health acquired Aetna, “establishing CVS Health as the nation’s premier health innovation company and marking the start of a new day in health care,” according to the company. Continues CVS: “As a combined company, we are working to transform the consumer health experience and build healthier communities by offering care that is local, easier to use, less expensive and puts consumers at the center of their care.” As of this writing, the question still loomed as to whether a federal judge would rule against the already-completed $69-billion acquisition of Aetna. CVS is somewhat optimistic, since the Justice Department has approved the deal.
In this case, as in the case with the tech companies, the acquisitions are lateral as a company moves to extend its reach beyond its current capability. Companies like Google have built their huge platforms by plugging the holes in their existing capabilities and acquiring companies that complement their expertise and know-how. In most cases, such acquisitions have a very happy ending. In some cases, the acquiring company might be far afield from the company it acquires but has a financial plan that would take the acquired company to new heights.
This is the case with Barnes & Noble, which is being acquired by a hedge fund for $476 million and will be taken private. It was acquired by Elliott Management and, according
to reports, will become a national chain with a business model more akin to that of a local bookstore. Hedge funds are known to gobble up under performing companies with a plan to turn those companies around and eventually sell them for a huge profit.
Elliott bought Waterstones, a national U.K. book chain, a year ago. It turned those stores around by making them more like local bookstores. Emboldened by the U.K. success, Elliot is seeking to do the same with Barnes & Noble. In fact, the man who runs Waterstones will become the Barnes & Noble CEO. (Barnes & Noble got so big because it acquired B. Dalton Bookseller and its 797 locations in 1987, and then Doubleday Book Shops and BookStop, which ran discount superstores in Texas.)
But mergers and acquisitions are not only for the big boys. In fact, they can be the saving grace for many mid and small-size businesses who coast helplessly, without any significant growth. In the airline industry, small airlines came to realize that without merging with another airline, there was little hope for their survival. This was especially true
for airlines that lacked a hub and thus provided passengers with only a few options. Mergers
between two small entities can lead to efficiency, cost-cutting and profitability. In the case of
Barnes & Noble, the new CEO will simply employ with the U.S. stores the same method that turned around his U.K. stores.
Mergers of small entities can be successful for a variety of reasons. Efficiency is the number- one reason such mergers succeed. Two chocolate companies in upstate New York merged
in the 1990s. Both were far from the break-even point, let alone profitable. The better of the two managers took over, one plant was closed down while the other expanded, the marketing team was carefully chosen, and customer service was greatly enhanced. In less than 18 months, the new entity was profitable and growing at a good pace. In this age of one-stop service, mergers or acquisitions can help create companies that provide a plethora of services, making them far more popular and, yes, profitable. Deciding between a potential merger or acquisition can be a daunting exercise, but in small business, succession often
dictates the course of action.
Company A may look to be acquired, since there are no heirs available to take over the business. Company B may be more ripe for a merger, since it does have potential successors but lacks the technology or know how to “break out,” perpetually keeping that company in a status-quo no-growth situation. In the U.S., mergers and acquisitions are no longer the exception. They are the very essence of capitalism, which fuels business growth. The high-tech industry, in a way, grew to what it is today because of its ability to constantly reinvent itself through mergers and acquisitions. Often in a merger or acquisition, just having access to a community of consumers enables growth, since those consumers can now be exposed to a new cadre of goods and services.
In small business, what gets in the way of potential successful mergers and acquisitions is
pride and ego. I have met many a businessman who would benefit enormously from a merger or an acquisition, but the mere thought of talking to a competitor shelves the whole idea. But as we’ve seen, America is flush with mergers and acquisitions, with a new chapter being written every day.