Mergers and Acquisitions
In the past 20 years, the information and technology industry has experienced unprecedented growth due to the revolution in the computer and internet technology (Allenstr & Njurell 2010). Communication has become as fast as the speed of light and the whole world has been reduced to a global village due to the interconnection established in the latter years (Colombage 2009). Being a revolution in the computer industry, many people and organizations have had a role to play but some organizations have had a greatly significant influence on the dynamics of computer world (Franks & Harris 1989). In the last ten years, new names of internet giants have emerged and with them great influence in the online platform. Organizations such as Facebook, twitter and Google were unknown of prior to the year 2000 and yet today they are making headlines everyday due to their contribution to the development of ICT. Services such as Pay pal, visa, MasterCard and Alipay and other online payment platforms have transformed money transfer from tiresome and time consuming manual transfer to wire transfers taking a few hours and in some cases even seconds. This has had a great influence for business and also for communication.
Just like all other businesses, the technology titans have had their share of profit making, losses, acquisitions, mergers and many others (Depamphilis 2008). In the last two to three years, major corporations have acquired smaller businesses in order to increase their clout as well as shareholding to increase profits (Vennet 1996). The ability of these business deals to convert to profits to the companies is generating a lot of debate with some analysts claiming that in most cases it is a PR stand rather than the business aspect of the transaction (Gabsi 2012 and Franks & Harris 1989). In addition, Microsoft, Yahoo, and Google get a lot of money from advertising in their News pages and other services they offer. As much as people are flocking these websites to obtain any information, the websites keep on minting money from companies and therefore the need for empire building over the platforms they have (Rhoades 1983).
By definition, mergers and acquisitions are transactions where two businesses end up being together or under the umbrella of one. In a merger, the businesses come together to form a completely new business while in acquisitions, one business takes over the other business. In an acquisition, the target company (which is taken over) becomes an extension of the parent company (Firth 1980 and Rhoades 1983).
Apple inc. is one of the companies that are known to shy away from mergers and acquisitions in recent years. The company has established a brand by itself and its hardware and software business are limited to one another. Apple manufactures software and updates for its products such as iphones, ipads, MacOS and iOS. Recently, there have been rumors that the Company is considering merging with Tesla motors but the officials have not yet confirmed. If it goes through, the merger will have opened a new page in the technology business and motor industry. Tesla motors is expected to launch its smart car very soon and it seems computer technology is slowly entrenching itself in motoring. Recently Google launched its flagship Google car which is completely technology and computer navigated.
In May 2012, Google acquired Motorola mobility in a $12.5 billion dollar transaction being one of the largest of its kind. Motor4ola being a purely android platform that is developed by Google, it was understandable why Google may decide to buy one of its own. The news was received in awe and send shockwaves across the corporate world with many of manufactures of android devises worried about the transaction. Unfortunately, the deal did not have much impact on the shares of both companies and the Motorola Mobility business kept on dwindling under stiff competition from Apple and Samsung. Two years down the line, the company sold the business entity to Lenovo in a $2.5 billion deal. Lenovo a Chinese owned technology company had acquired IBM hardware business a few years ago and helped overturn the fortunes of the company. The biggest question that analysts have is why Google would decide to sell a company it just acquired two years ago at such a staggering loss? The other question that is interesting is whether there is too much hype into these acquisitions such that the players are overlooking the business aspects of the transactions. This is because most of the acquisitions do not reflect the amount they are made to be in public eye as suggested by Franks and Harris (1989). It is also known that Google’s aim to buy Motorola was to shore up its field of patents and evade lawsuits from Apple, Samsung and other huge technology companies but the value of Motorola’s patents did not have much impact on its business.
Another recent deal was the decision of Microsoft to purchase Nokia mobile business in a similar take over like the one for Google and Motorola. One of the similarities between Microsoft’s purchase of Nokia and Google’s purchase of Motorola mobility is that, the target companies are hardware manufacturers of the software developed by the parent company. For Google, Motorola was the manufacturer of the hardware devises that work with the Android operating system while for Microsoft; Nokia was the manufacturer of hardware that uses its Windows operating system. The outcome of Microsoft’s acquisition of Nokia mobile platform is still yet to be known but the fate of Nokia seems to be dwindling day by day. Contrary to Google, the Microsoft’s deal was with its greatest carrier of Window’s 8 Operating System. The move comes in hot heels after Microsoft bought Skype for a much greater deal of money. The effect to profits both at Microsoft and for Skype is not noticeable as per today. This begs a lot of people to question the logic behind companies spending huge sums of shareholders money in pursuit of greater empires (Gray 2002 and David 2013) Nokia has been a market leader in mobile phone business for a long time before the entrance of Apple’s iPhone series and Samsung’s Galaxy Smartphone series. Currently it is the most widely used mobile phone after Samsung but most of its customers are low end users who use the older models. The ability of Microsoft to transform the fate of Nokia from downward trend to business again is yet to be seen.
The latest acquisition by a major technology company is the deal between Facebook and WhatsApp. WhatsApp is the greatest online chatting service with over 400 million subscribers while Facebook is the largest social networking site with over 950 million users. Facebook has offered to purchase WhatsApp for $19 billion breaking the previous Google’s record of $12 billion for Motorola. Facebook acquisition of WhatsApp is in line with consolidating its control over the social networking platform. Having the largest online social networking site and in addition to having the largest mobile chatting platform which is expected to hit a billion users in a short time gives the organization a great influence. With Google controlling much of the internet, Microsoft controlling the software industry and the PC operating system business, it is only logical that Facebook would spend a lot of money to control the social networking business (Sudarsanam & Mahate 2006).
Facebook’s move is viewed as a response to the fast growing WeChat which is owned by the Chinese technology giant Tencent and is making headway into western capitals (David 2013). The other reason behind Facebook’s move is the rapid shift in which people are moving away from the computers heading to Smartphones. This means that the next platform will be mobile and for fear of losing out, it opted to move towards WhatsApp.
Despite the fact that technology companies need to make money through acquisitions and mergers, control over great amounts of internet obviously translates to greater income for these services. Nowadays, much of the population has shied away from getting information from the old sources such as newspapers and books. This means that they get information from online sources. This means that websites such as Facebook and WhatsApp get a lot of revenue from advertising on the social networking site. With over 400 million users, WhatsApp gives Facebook a great platform for its advertising services and therefore one reason for the acquisition.
It is believed that over 20 billion messages go through WhatsApp everyday and many companies (including Google) have been in line to take over the platform before they were beaten to it.`
One interesting and different acquisition was made by Lenovo with IBM PC business being taken over. Contrary to what many expected, the company was able to transform the ailing company back to profits and in an unprecedented move, it has gone ahead and purchased Motorola from Google at a fraction of what Google bought the original company. With Lenovo, it has been a clear strategic business deals and the company aims at cracking the American Smartphone market in the near future. The company has created itself to be the largest PC manufacturer in the world within a very short period of time and people are having a lot of confidence that it will improve the fate of Motorola Mobility. The company is currently undergoing internal restructuring that is aimed at lifting Motorola from losses in the next one year. The success of the company in the American market is still expected to be rough considering that Chinese Multinationals are heavily discouraged by the American administration. This is in line with legislation passed against its fellow companies such as Huawei and ZTE due to national security reasons.
The logic behind acquisitions and the monetary implications points to companies trying to quickly build their business empires than genuine money making business. Most of the latest big names have been involved in one way or the other in acquiring ailing big businesses. Apart from Facebook’s acquisition of WhatsApp, most companies on the receiving end are large corporations whose market value is on the decline. As suggested by Singh (2004) and Sudarsanam & Mahate (2006), the ability of the acquiring partner to turn the tables round back to profits is usually questionable and it is obvious that these conglomerates want a greater empire rather that the market value which the transaction will bring on board.
Merger and acquisition activity is experiencing high growth rate, with corporations such as Google, Apple, Twitter and Yahoo investing billions of dollars in the past years in acquiring and establishing businesses. Even though some companies like Apple has been shying away from merger and acquisition, by establishing a brand by itself and its hardware and limiting software business to one another, other companies have ventured with ultimate returns evident in the past years. As supported by Gabsi (2012), merger and acquisition activity is interpreted on the basis of increasing shareholder returns, where the empirical research in finance as addressed in the paper indicates that short run impacts are irrelevant compared to the returns.
Conclusion
Depamphilis (2008) considered that long run impacts as referred in business language are largely negative and therefore, they have directed real inspiration for merger and acquisition activity. As asserted by AllenstrÖm & Njurell (2010), merger and acquisition activities have slight difference whereby, acquisition is referred to the state of a company taking over another and then establishing itself fully in all following transaction. On the other hand, merger is defined by the coming together of companies of same size which establish a single company in the next transactions in business. As noted from Gabsi (2012) research, companies of equal merger are not commonly evident in the business world, but acquisition has been evident from companies getting involved in acquiring businesses targeting full renovation and establishment of competitive business operations. Though not all acquisitions have been successful as evident in the research and report by Sudarsanam & Mahate (2006), companies have been practicing the activity in efforts to increasing their income.
Merger and Acquisition by Google from 30th Nov, 2012 to 22nd Oct, 2013
| No. | Acquisition date | Company | Business | Country | Price | Integrated with or Used as |
| 1 | 30th Nov, 2012 | BufferBox | Package Delivery | CANADA | $17,000,000 | Google Shopping, Android |
| 2 | 6th Feb, 2013 | Channel Intelligence | Product ecommerce | USA | $125,000,000 | Google Shopping |
| 3 | 12th Mar, 2013 | DNNresearch Inc. | Deep Neural Networks | CANADA | – | Google, Google X |
| 4 | 15th Mar, 2013 | Talaria Technologies | Cloud Computing | USA | – | Google Cloud |
| 5 | 12th April, 2013 | Behavio | Social Prediction | USA | – | Google Now |
| 6 | 23th April, 2013 | Wavii | Natural Language Processing | USA | $30,000,000 | Google Knowledge Graph |
| 7 | 23rd May, 2013 | Makani Power | Airbone wind Turbines | USA | – | Google X |
| 8 | 11th June, 2013 | Waze | GPS navigation Software | Israel | $966,000,000 | Google Maps |
| 9 | 16th Sep, 2013 | Bump | Mobile software | USA | – | Android |
| 10 | 2nd Oct, 2013 | Flutter | Gesture recognition technology | USA | $40,000,000 | Google, Android, Google X |
| 11 | 22nd Oct, 2013 | FlexyCore | DroidBooster App for Android | France | $23,000,000 | Andriod |
References
AllenstrÖm, E & Njurell, F 2010, Non-financial risk assesment in mergers, acquistions and investments. Identifying sources of business risk in the ICT industry, rapport nr.: Management 10: 14.
Colombage, S, R 2009, Financial markets and economic performances: Empirical evidence from five industrialized economies, Research in International Business and Finance, 23(3), 339-348.
Depamphilis, D. M. 2008. Mergers, acquisitions, and other restructuring activities. Amsterdam: Elservier/Academic Press.
Firth, M 1980, Takeovers, shareholder returns and the theory of the firm, The Quarterly Journal of Economics, 94(2): 235–260.
Franks, J & Harris, RS 1989, Shareholder wealth effects of corporate takeovers: the U.K. experience: The impact of acquisitions on firm performance: A review of the evidence 1955–1985, Journal of Financial Economics, 23,225–249.
Gabsi, S 2012, Research and Development (R&D) spillovers and economic growth: Empirical validation in the case of developing countries. Journal of Economics and International Finance, 4(5)
Gookin, D 2013, Android tablets for dummies (Unabridged. ed.), Hoboken, N.J.: John Wiley & Sons.
Gray, BJ 2002, Market orientation and service firm performance a research agenda, Bradford, England: Emerald Group Pub.
Rhoades, SA 1983, Power, empire building, and mergers, Lexington Books Lexington, Massachusetts.
Singh, S 2004, Market orientation, corporate culture, and business performance. Aldershot, England: Ashgate.
Sudarsanam, S & Mahate, AA 2006, Are friendly acquisitions too bad for shareholders and managers? Long-term value creation and top management turnover in hostile and friendly acquirers, British Journal of Management, 17 (special issue), S7–S29.
Vennet, RV 1996, The effect of mergers and acquisitions on the efficiency and profitability of EC credit institutions, Journal of Banking and Finance, 20 (9), 1531–1558.
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