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PORTABLE MBA IN FINANCE AND ACCOUNTING CHAPTER 17

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17 PROFITABLE GROWTH BY ACQUISITION. Richard T. Bliss. The subject of this chapter is growth by acquisition; few other business transactions receive more scrutiny in both the popular and academic presses. There are several reasons for this attention. One is the sweeping nature of the deals, which typically result in major upheaval and job losses up to the highest levels of the organizations. | PROFITABLE 17 GROWTH BY ACQUISITION Richard T. Bliss The subject of this chapter is growth by acquisition few other business transactions receive more scrutiny in both the popular and academic presses. There are several reasons for this attention. One is the sweeping nature of the deals which typically result in major upheaval and job losses up to the highest levels of the organizations. A second is the sheer magnitude of the deals the recently announced merger between Time-Warner and AOL worth more than 150 billion exceeds the annual GDP of 85 of the world s nations Thirdly the products involved are known to billions around the globe. Daimler-Benz Coca Cola and Louis Vuitton are just a few of the world-renowned brand names recently involved in merger and acquisition M A transactions. Finally the personalities and plots in M A deals are worthy of any novelist or Hollywood scriptwriter. The 1988 acquisition of Nabisco Foods by RJR Tobacco at that time the largest deal ever at 25 billion was the subject of a New York Times best-seller and a popular film both called Barbarians at the Gate. Since then there have been numerous other best-selling books and movies based on real and fictional M A deals. In spite of this publicity and the huge amounts of money involved it is important to remember that M A transactions are similar to any other corporate investment that is they involve uncertainty and the fundamental tradeoff between risk and return. To lose sight of this simple fact or to succumb to the emotion and frenetic pace of M A deal-making activities is a sure path to an unsuccessful result. Our goal in this chapter is to identify the potential pitfalls you may face and to create a road map for a successful corporate M A strategy. 561 562 Making Key Strategic Decisions We review the historical evidence and discuss some of the characteristics of both unsuccessful and successful deals. The importance of value creation is highlighted and we present simple analytical .