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Business is an endeavor that works under the philosophy of grow or die. Companies that opt for growth are rewarded with a greater market share than those on the verge of dying. Those that do fail to grow are inclined to fester, and end up losing customers, market share, or demolishing their shareholder value. One of the business strategies that are pivotal in both extremes is acquisitions. They enable strong companies to grow faster than competition and provide entrepreneurs with rewards for their efforts.
They also ensure weaker companies are swallowed more quickly, or, in worst scenarios, rendered irrelevant through exclusion and ongoing share erosion (Hart & Sherman, 2006). This research paper identifies two companies in different industries that are using acquisitions to strengthen their market positions. It examines how these acquisitions enabled the companies to acquire resource strengths and competitive capabilities.
Basically, an acquisition is as a result of one company controlling ownership interest in another organization, a lawful subsidiary of another firm, or some assets of another firm. It may entail the buying of another firm’s resources or stock. The company that is acquired continues to operate as an official owned subsidiary. Within the networking and communication industry, Cisco has perfected the art of acquisitions since its inception in 1984 (Velte & Velte, 2006).
It has refined the use of acquisitions as a strategic business weapon. Where other companies acquire organizations with the ensuing results being stalled growth or further restructuring in a frantic attempt to make the acquisition profitable, Cisco increases the revenue of its acquired companies and fully integrates new employees into its culture. What makes the acquisitions made by Cisco more special than those made by other companies inside or outside the industry?
Cisco was founded in 1984 as a California corporation. It received its first round of venture capital funding in 1987 from Sequoia, $2.5 million. It had ten employees at the time. By the time the company went public at the onset of 1990, it had an initial public offering (IPO) of close to 300 million shares that went out at $18 and closed at $22.50.
Since then, Cisco has grown in leaps and bounds (Velte & Velte, 2006). It began its buying spree with the purchase of Crescendo Communications, Inc. in 1993. This was followed by a series of acquisitions as a way of moving quickly into product areas that customers demanded, but Cisco did not yet supply.
The company began its acquisitions on a slow note but picked up steam so that in 2000 alone, Cisco purchased 22 companies. Between 1993, the firm had finalized 70 acquisitions deals with expenditure on these purchases amounting to $35 billion. Cisco has managed to increase its market share through acquisitions because the firm believes that customers are not just interested in pinpoint products, but end-to-end solutions (Velte & Velte, 2006).
Another company that has been successful in the implementation of acquisition strategies is Procter & Gamble. The company manufactures household products such as pharmaceuticals, cleaning agents, pet supplies and products for personal care (Dayer, Dalzel, & Olegario, 2004). The year 2005 was a milestone for this company following its acquisition of Gillette for $54.91 billion.
This was the largest acquisition in P & G history. It resulted to the creation of the largest consumer product company in the world as P & G is today. Another deal that increased the company’s market share is its acquisition of Iams. The latter is a leading manufacturer of pet foods. The deal, completed in 1999, added to P & G’s 44 consumer brands that today contribute more than $500 million to P & G revenue (Dayer, Dalzel, & Olegario, 2004).
In conclusion, acquisitions are a vital part of any healthy economy and importantly, the primary way that companies are able to produce returns and investors, as well as increasing their market share.
This fact, couple with the potential for large returns, make acquisition a highly attractive strategy for entrepreneurs and owners to capitalize on the value created in a company. Nevertheless, not all acquisitions deals are as clean and safe as it may appear. The process has pitfalls. As such, any party endeavoring to take the risk should be cautious before taking the big leap.
References
Dayer, D., Dalzel, F., & Olegario, R. (2004). Rising tide: lessons from 165 years of brand building at Procter & Gamble. London: Harvard Business Press.
Hart, M. A., & Sherman, A. J. (2006). Mergers & acquisitions from A to Z. New York: AMACOM.
Velte, A. T., & Velte, T. J. (2006). Cisco: a beginner’s guide. New York: McGraw-Hill Professional.
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