Using the LIRN online library, perform a search on “acquisition strategy.” Identify at least two companies in different industries that are using acquisitions to strengthen their market positions. How have these acquisitions enhanced the acquiring companies’ competitive capabilities?
The companies I’ve selected for the purpose are Apple which is more into the manufacturing industry and Facebook which is into a virtual industry. Both of these companies are trying to enter into new industry segment and in an attempt to improve the product/service they offer for which even with a solid R&D team, they’ve spent a lot on the acquisition. That strategy for them seems to be working well.
Let’s look at Apple first. As of today, they’ve acquired 99 different companies, not all are a success but the ones successful has made Apple be the first company to touch the trillion dollar valuation and one of the strong market player. Apple’s biggest acquisition has been of Beat’s electronics in August 2014 for $3 billion (Steele, 2014). This acquisition helped the company enhance their audio devices including the headphone, phone speakers and also with a strong team on the company they acquired, they used the same talent to also develop solutions for Apple which improved the overall quality of their product. In late, 1997, Apple acquired NeXT to bring back Steve Jobs back in the company and it contributed significantly in the Mac OS X, iOS, tvOS, watchOS, and even the macOS. Their acquisition of PA Semi, a semiconductor company provided them with those patents to use the same for iPhone (Krazit, 2009). The company acquired a company called Siri which actually is now included as the feature in Apple by the same name, and is a very popular addition. Further, their acquisition of Authentic provided them to dive into biometrics in their handheld devices while C3 Technologies helped them to compete with google maps. They also showed their intent to dive into AI world with the purchase of Turi in late 2016 (Kumparak, 2016). All those acquisitions for Apple added value in a way or other helping them enhance the features in the products that they develop. If they had moved ahead with a mission to develop all those, it would have been a very long process of R&D, development, testing, validation and all but with a finished product, they can bypass most of those steps and bring it into action much quicker. That is very necessary as the world is moving fast thus it has helped Apple remain as the top company in its category.
Facebook, on the other hand, has used the acquisitions to kill their competitors or also in a way to accelerate their growth. The major acquisition of WhatsApp for $19 billion can also be considered as killing off the competition as this messaging app was quickly hitting the 500 million users and was on a way towards hitting 1 billion with daily new users being 1 million (Facebook, 2014). Their own application running - Facebook messenger used added group feature after the acquisition of Beluga and their group messaging application (Siegler, 2011). That shows that they have used their acquisitions to add services to their already existing product. With the world slowly moving towards virtual reality, Facebook acquired Oculus for $2 billion and intends to use it to change the current dynamics of social networking dramatically (Zuckerberg, 2014). In addition to that, they’ve also acquired Pebbles Interfaces and the rights to use gesture control - their patented product for $60 million to aid the VR aspect. The company also acquired photo-sharing company Instagram for $1 billion. With that both the platforms could use features from each other’s platform and benefit with it. You can see facebook identifying faces in photos someone else has posted of yours and alert you even if you’re not tagged, this is thanks to their acquisition of Face.com for $100 million. All those shows that with every acquisition, the company is being stronger. Even if the company doesn’t have 100% success in the acquisitions they’ve made, it has all helped the company to gain an accelerated growth and enter into a new segment of the market. All those have helped open new door and reach to larger mass which is crucial for the company trying to connect the world.
That is how both these companies are using the acquisition strategy while gaining a competitive advantage.
Facebook to Acquire WhatsApp. (2014). Retrieved from https://newsroom.fb.com/news/2014/02/facebook-to-acquire-whatsapp/
Krazit, T. (2009). Apple acquires low-power chip designer PA Semi. Retrieved from https://www.cnet.com/news/apple-acquires-low-power-chip-designer-pa-semi/
Kumparak, G. (2016). Apple acquires Turi, a machine learning company. Retrieved from https://techcrunch.com/2016/08/05/apple-acquires-turi-a-machine-learning-company/
Siegler, M. (2011). Facebook Acquires Group Messaging Service Beluga In A Talent AND Technology Deal. Retrieved from https://techcrunch.com/2011/03/01/facebook-beluga/
Steele, B. (2014). Apple acquires Beats Electronics for $3 billion. Retrieved from https://www.engadget.com/2014/05/28/apple-acquires-beats-electronics-for-3-billion/
Zuckerberg, M. (2014). Facebook acquires Oculus VR. Retrieved from https://www.facebook.com/zuck/posts/10101319050523971?stream_ref=1
Acquisition is strategy which is used to purchase controlling stake (more than 50% shares) or 100 percent of the interest of another company which thereby makes it their subsidiary company (Mkwawa, 2018). "Banks should look into acquiring some fintech companies that fit their cause since the future of banking is digital banking so they are facing with the choice to either adapt to digital revolution or lose market share (Mkwawa, 2018).” Acquisition not only helps to grow network and presence in the market it also reduces the possibility of competition to grow.
Dallas based Onit Communication Inc.'s acquisition of Tel West Network Service Corporation has boosted the revenue of the company three folds. The acquisition strategy was focused in providing growth in areas where they could provide full services to small and mid range customers such as web hosting, use of VoIP solutions, servers, and email services (Business Wire, 2005). Onit’s reach into a separate market niche was boosted overnight without having to do all the hard work. The acquisition saved time to penetrate the market, stretch their reach and increase the revenue.
Citizens Bank is the first bank to acquire another company after the central bank issued acquisition bylaw in Nepal. It first acquired Nepal Housing and Merchant Finance Ltd and then followed it by acquiring People’s Finance Ltd and then Premier Finance Co Ltd increasing its capital by Rs. 3.1 billion and increased its branch to 58 location and serving through another 93 branchless banking (Republica, 2016). The acquisition has not only increased the capital and asset of the company but has also spread its presence to multiple locations through its new subsidiary company.
These are some of the examples of companies that have gone through acquisition gaining growth and presence in the market.
Business Wire. (2005, July 26). ONIT Acquisition Strategy Helps Triple Q2 Revenue; Acquisition Strategy Results in 300% Revenue Increase Over Q1 2005. Business Wire; New York .
Mkwawa, K. (2018, June 22). BANKING TIPS: Mergers, acquisitions as growth strategy acquisitions strategy for growth. The Citizen; Dar es Salaam .
Republica. (2016, July 17). Citizens Bank acquires Premier Finance. myRepublica.
An acquisition is a strategy in which one firm buys a controlling or 100 percent share or interest in another firm. The aim is to make the acquired firm a subsidiary business within its portfolio. More specially, acquisition is the case of absorption. In acquisition, an existing organization takes over another organization through purchase of shares or ownership. The acquired organization generally, keeps its separate identity (Marimuthu, 2008).
Why one organization wants to acquires to other? In Nepal Prabhu Finance was "C” class financial institution of Nepal and it was able to acquire the big financial venture Kist Bank. From this agreement, the 100 percent KIST 100 Percent share was brought by Prabhu Financial instruction.
There are following reasons of acquisition
Increased Market Power: Achieving greater market power is a primary reason for acquisitions. Market power increases when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or supporting activities are lower than those of its competitors.
Overcoming the Entry Barriers: Barriers to entry are difficulties new firms encounter when trying to enter that particular market. The established firms may have economics of scale.
Increased speed to market: Developing new products internally and successfully introducing them into the marketplace often requires significant investment and other resource.
Low Risk: Acquisitions are viewed less risky, because the outcomes and acquisition can be estimated more easily and accurately. Hence, acquisition strategies are a common means of avoiding risky internal ventures and become a substitute for innovation.
Increase diversification: Acquisitions are also used to diversify firms. It is difficult for companies to develop products that differ from their current lines for markets in which they lack experience.
Reshaping the firm’s competitive scope: Firms may use acquisitions to lessen their dependence on one or more products or markets and reduces the negative effects of an intense rivalry.
Learning and developing new capabilities: Firms something’s follow acquisitions to gain access to capabilities they lack. Firms should seek to acquire companies with different but related and complementary capabilities in order to build their own knowledge base.
Example of Nepalese’s Situation: Civil Bank, a class "A” financial institution, had paid - up capital of Rs 2.89 billion, deposited of 27.37 billion and credit portfolio of Rs. 23.49 billion as of the first quarter of the current fiscal years. The capital adequacy ratio of the bank stands at 12.93 percent and the portion of non - performing loans to total loans hovers around 2.50 percent. The bank generated net profit Rs. 58.75 million in the first quarter of the fiscal year. ILFC, a class "B” institution, on the other hand, had a paid - up capital of Rs. 2.01 billion, deposit of Rs. 1.36 billion and credit portfolio of Rs. 1.62 billion as of first quarter of the fiscal years. The Bank generated a net profit of Rs. 4.42 million in the first quarter of the fiscal years. For this following reasons Civil Bank Increased Market power, Overcoming entry barrier, Increased Speed to market, Low risk, Increased Divarication, reshaping the firm’s competitive scope Civil bank used acquisition strategy and acquired ILFC $3.12 billion agreement. ILFC CEO Anjay Bahadur Shai will stay in civil bank as a Deputy CEO and will report to the CEO of Civil Bank, Mr. Ichchha Bahadhur Tamanag. After the complete acquisition, the consolidate unit will have paid - up capital of 5.09 billion, deposit of Rs. 28.22 billion, credit portfolio of Rs 25.14 billion and total assets of Rs. 36.93 billion. Now they have strong positioning in market with capital.
Now here I discuss the case of Microsoft and LinkedIn Company acquired process. Microsoft is the world largest tech giant and Bill Get is the Chairman of Microsoft and he was first richest person in world until 2016 but now he is top 2 richest person in the world. In 2015/2016 when LinkedIn was first time introduced in market and in 2016 Microsoft decided to use acquisition strategy and acquired LinkedIn Corporation for $27.2 billion and the per share value was $126. But Jeff wiener will stay in the same position in LinkedIn but his major duty is to report to CEO of Microsoft Corporation Mr. Satya Nadela. When the complete share buy one company to another company is the acquisition of company (Gillen & Rowan, 2016). Then the market value of LinkedIn was automatically increased at that time and this agreement will undoubtedly strengthen their market position and competitive capabilities. This agreement will actually preserve LinkedIn’s brand, LinkedIn’s culture and its independence and Microsoft’s ambitious plan to revitalize and Microsoft’s productivity and business processes (Bownman & Faulkner, 1997). Microsoft will use the target firm’s data trove and cachet which is a leading specialized networking site to hypercharge its software offerings. Also, after this deal Microsoft will provide an internal communication platform which no other can provide (STAFF, 2016).
Bownman, C., & Faulkner, D. (1997). Competitive and Corporative Strategy of Microsoft Coorporation. . Irwin .
Gillen, A., & Rowan, L. (2016). Microsoft and LinkedIn: Invitation to Connect Accepted. IDC Link, Real Time IDC research.
Marimuthu, M. (2008). Mergers and Acquisitions: Some Empirical Evidence on. International Journal Of Business And Management, 3 (10) , 8-15.
STAFF. (2016). Microsoft to Acquire LinkedIn: Reactions & Analysis . Retrieved from cebglobal: https://www.cebglobal.com/talentdaily/microsoft-plan-acquire-linkedin-reactions-analysis/
Acquisition is a growth strategy in which one company, the acquirer purchases the stocks and assets, and absorbs the operations of another company, the acquired (Gamble, Petaraf, & Thompson, 2015). It provides acquirer with the right to take decisions regarding the acquired company’s assets without consulting its shareholders (Investopedia, 2018). Acquisition strategy is used by the companies to become more competent in market by achieving larger assets base, entering in new market, generating greater market shares, increasing manufacturing capacities and/or gaining complementary strengths and competencies (Gupta, 2012).
Some of the companies that are using acquisition strategy to strengthen their market positions are:
Walmart’s Flipkart Acquisition
Walmart, an American multinational retail corporation, well known for its grocery stores, discount department stores and hypermarkets has acquired India’s largest online retailer, Flipkart on May, 2018 for $ 16 billion. It is the largest acquisition in India and marks the world’s biggest purchase of an e-commerce company. With this acquisition, Walmart owns 77% stake in the Indian e-commerce giant (India Times, 2018).
This acquisition is a move to compete with Amazon that has provided geographical spread to Walmart along with increased online presence (Ranjan, 2018). Only 100 million people out of the population of 1.3 billion using ecommerce and prediction by Morgan Stanley’s analysts to reach ecommerce business of India to estimated value of $200 billion in 2026 make it huge, yet relatively untapped market segment. So, Walmart is betting on this market with high growth potential by acquiring Flipkart (Roy, 2018).
The diverse retail expertise, merchandise supply chain and financial strength of Walmart can be used to accelerate the sales of Flipkart that has reached to $7.5 billion in fiscal year ending 2018, that will also improve Walmart’s performance in international market. In addition, Walmart can gain operational insight from Flipkart’s research in artificial intelligence, use of data across its platform, logistics network and burgeoning mobile payment service, and use India as a place to experiment with technology and ecommerce. The insights and learnings from those experimentations can be applied in global market that will enhance Walmart’s competitive capabilities (Levy, 2018). Prior to the acquisition of Flipkart, Walmart acquired jet.com, shoes.com, Moosejaw, Bonobus and Parcel that has proved to be beneficial for the company as it has increased number of items offered for sale and geographical coverage.
Facebook’s WhatsApp Acquisition
Facebook, one of the most popular American online social media and social networking company has been using acquisition strategy for its growth and success since its formation in 2004. Parakey, FriendFeed, Instagram, Onavo, Oculus VR are some of the acquisitions made by Facebook with the aim of increasing its functionability and features through procurement of new talent, acquisition of new technology and buying out the competitors. Among 50 companies and properties acquired by Facebook over the years, WhatsApp by far is the largest acquisition. WhatsApp is a freeware, cross-messaging and VoIP service that was purchased by Facebook at $ 19 billion in February 2014 (Hayes, 2018).
As per the data of May 2018, 65 billion messages are exchanged by 1.5 billion WhatsApp users every day. The tremendous growth of WhatsApp after being purchased by Facebook has proved the acquisition of the most popular messaging service a smart move. The acquisition has was also aimed on making the customers choose one of the many services offered by Facebook above the services one product competitors like Skype and Snapchat (Bhardwaj, 2018). The acquisition strategy has helped Facebook in achieving its aim to reach billions of users by increasing the customer base, achieving growth in smartphone market, reclaiming losing market share among teens, expanding its reach to Europe and emerging market and acquiring new customers (Singh, 2014). The competitive capabilities of Facebook has been enhanced as it has fueled the growth of Facebook in developing markets where WhatsApp is widely used despite the sparse internet connectivity.
To conclude, the acquisition strategy can work well for the organization by allowing access to markets, products, technology, resources and talent faster at reduced risk if there is strategic and organizational fit between the acquirer and acquired (Jemison & Sitkin, 1986).
Bhardwaj, P. (2018, May 8). The number of messages sent via WhatsApp each day has tripled since Facebook bought it four years ago. Retrieved from Business Insider: https://www.businessinsider.com/whatsapp-messages-tripled-facebook-acquisition-charts-2018-5
Gamble, J. E., Petaraf, M. A., & Thompson, A. A. (2015). Essentials of Strategic Management: The Quest for Competitive Advantage (Fourth ed.). New York: McGraw Hill Education.
Gupta, P. K. (2012). Mergers and Acquisitions (M&A): The Strategic Concepts For The Nuptials Of Corporate Sector. Innovative Journal of Business and Management, 1 (4), 60-68.
Hayes, A. (2018). Facebook’s Most Important Acquisitions. Retrieved from Investopedia: https://www.investopedia.com/articles/investing/021115/facebooks-most-important-acquisitions.asp
India Times. (2018, May 10). Walmart Acquires Flipkart for $16 Billion in World’s Largest E-commerce Deal. Retrieved from The Economic Times: https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/walmart-acquires-flipkart-for-16-bn-worlds-largest-ecommerce-deal/articleshow/64095145.cms
Investopedia. (2018). Acquisition . Retrieved from What is Aquisition?: https://www.investopedia.com/terms/a/acquisition.asp
Jemison, D. B., & Sitkin, S. B. (1986, March). Acquisitions: The Process Can Be a Problem. Harvard Business Review . Retrieved from https://hbr.org/1986/03/acquisitions-the-process-can-be-a-problem
Levy, A. (2018, May 15). 3 Reasons Walmart’s Flipkart Acquisition Is Its Most Important Yet. Retrieved from The Motley Fool: https://www.fool.com/investing/2018/05/15/3-reasons-walmarts-flipkart-acquisition-is-its-mos.aspx
Ranjan, S. (2018, June 8). Will Flipkart buy be a shot in the arm for Walmart’s international ecommerce play? Retrieved from Your Story: https://yourstory.com/2018/06/will-flipkart-buy-shot-arm-walmarts-international-ecommerce-play/
Roy, P. K. (2018, May 11). Why did Walmart buy India’s Flipkart? Retrieved from BBC News: https://www.bbc.com/news/world-asia-india-44064337
Singh, T. (2014, February 20). What is the significance of WhatsApp for Facebook? Retrieved from Quora: https://www.quora.com/What-is-the-significance-of-WhatsApp-for-Facebook-Why-did-Facebook-acquire-WhatsApp-at-such-a-hefty-price-of-19-billion