16-17-mergers.qxp 22/4/09 16:59 Page 16
MERGERS
The
urge
to merge
THE WORDS MERGERS AND ACQUISITIONS
ARE OFTEN USED TOGETHER, BUT THEY
ACTUALLY MEAN VERY DIFFERENT THINGS,
WRITES SIMON COOK
A
cquisitions often peak when $3 billion (£2 billion),
stock market prices reach highs, and while Skype is a
as canny sellers recognise the great stand-alone
window of attractive pricing and buyers company, eBay has
are driven by optimistic share ratings not achieved the
to build even bigger businesses and synergies it hoped for. bargain
enter new markets aggressively to drive can turn out to be
further growth. From a small company SURVIVAL INSTINCT a huge error. The short-
perspective, this mostly results in In downturns, mergers are often term costs may be significantly
attractive exits for founders and driven by the need to survive as higher than initially thought, but
venture capitalists. markets contract and margins are only time will tell whether the enlarged
bank with a significant dominance in
many areas of consumer banking will
“The current dilemma at Lloyds TSB following its merger with
ultimately deliver a return on the merger.
HBOS suggests that what at first appears to be a bargain
Private-to-private mergers are starting
to become more common as entrepreneurs
can turn out to be a huge error”
and their backers identify companies and
look to create value this way, given the
reduction in outright exits and tougher
Some of these acquisitions deliver a lot recovered through economies of scale. times in raising new cash.
of value to their acquirer; Symantec has Occasionally a bargain appears, or Recent announced mergers include
built a significant integrated business what appears to be a bargain. The Stardoll and Piczo, Imagine and Irish
around the email archiving company circumstances of the owners and the Broadband, Snell & Wilcox and Pro-Bel
KVS, which they acquired a few years ago, need for liquidity or financing can result and the merger of Amazon’s DVD rental
as has Autonomy through the acquisition in businesses being available, which business with Lovefilm. These private
of KVS competitor Zantaz. normally would not be without a premium mergers should not be seen as weaker
Sometimes it is more difficult to price. But is it the right time to look at players picking off troubled companies,
generate success from an acquisition; M&A? The current dilemma at Lloyds or two drunks propping each other up.
Draper Fisher Jurvetson partners in TSB following its merger with HBOS Rarely is it worth buying a troubled
California sold Skype to eBay for over suggests that what at first appears to be a company, as the effort that goes into
16 Mergers & Acquisitions
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