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Discussion on: Acquisition Strategy

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ncitujjwal

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

  1. 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.

  2. 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.

  3. Increased speed to market: Developing new products internally and successfully introducing them into the marketplace often requires significant investment and other resource.

  4. 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.

  5. 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.

  6. 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.

  7. 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).

References

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: cebglobal.com/talentdaily/microsof...