A brief overview of the concept of a business acquisition - why they are done and how they go wrong.

1. Acquisitions

2. What is an acquisition? Where one business acquires a controlling interest in another business

3. Examples (1) December 2005 Buyer – ITV plc | price - £175million http://www.telegraph.co.uk/finance/2927757/ITV-buys-Friends-Reunited-for-175m.html December 206 Buyer – First Choice | price - £120million http://www.manchestereveningnews.co.uk/news/business/s/231/231640_first_choice_snaps_up_120m_lateroomscom.html

4. Examples (2) March 2004 Buyer – WM Morrisons| price - £3bn http://news.bbc.co.uk/1/hi/business/3542291.stm January 2007 Buyer – Tata| price - £5.8bn http://news.bbc.co.uk/1/hi/business/6315823.stm

10. Two directions of integration (1) Forward Backwards Horizontal Vertical

11. Two directions of integration (2) Direction Explanation Forward + vertical Acquiring a business further up in the supply chain – e.g. manufacturer buys a distributor Backward + vertical Acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler Horizontal Acquiring a business at the same stage of the supply chain – e.g. a manufacturer buys a competitor Conglomerate Where the acquisition has no clear connection to the business buying it

12. Example (1) "This is a once in a lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry", CEO Adidas = Horizontal integration

13. Example (2) Broadcaster BSkyB acquired television set-top box maker Amstrad for about £125m. Sky said that the deal meant they could now save money, design their products in-house and be more innovative. = Backward vertical integration

14. What is “Synergy”? The whole is greater than the sum of the individual parts

15. Two kinds of “synergy” Eliminate duplicated functions & services Better deals from suppliers Higher productivity & efficiency from shared assets Cost Savings Cross-selling to customers of both businesses Access to new distribution Brand extensions New geographic markets opened up Revenues

16. But acquisitions usually fail It is widely accepted that over 50-70% of takeovers destroy shareholder value

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