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Industry Acquisitions in the Recent PastView Template for: Industry Acquisition in the Recent Past The purpose of this section is to highlight recent mergers and acquisitions which have occurred in the industry. Whenever one company mergers or acquires another, a shift in strategy is likely. This is often due to the new opportunities available to the combined entity with its new level of skills, products and financial resources. It is also due to the fact that corporate structural changes make it more politically acceptable to have an open discussion about strategy. Theoretically, the merger or acquisition itself should be part of a well thought out long-term strategic plan, but this is not always the case (which is one reason why so many acquisitions do not increase shareholder value for the acquiring company). It is important to monitor the types of acquisitions that have taken place, and to analyze what motivated them. Some acquisitions are driven by economies of scale. For example, in the U.S. office superstore industry (which began around 1987) the goal has been to acquire as many stores as possible as fast as possible to take advantage of economies of scale in purchasing. In U.S. commercial banking, some of the largest acquisitions in the early 1990's were driven by the need to lower unit costs through better capacity utilization. For over twenty years banks have poured millions of dollars into information technology solutions in order to electronically process as many transactions as possible. The result has left almost all large money center banks with powerful computer systems able to handle far more transactions than in the person-to-person, paper-transaction world. In general, Bank 'A' can now handle all of the systems processing for it and Bank 'B' with little added costs. This driving force will ensure that bank consolidations continue in the U.S. Another type of bank acquisition that has occurred more recently is motivated by the desire to broaden the product line into mutual funds. This is a very different type of strategic move, with very different implications. Many telephone companies are more than simple communication companies. Besides expanding abroad, they are merging with cable companies; broadening into computer services and computer software; offering financial services, and much more. Each merger and acquisition needs to be understood in terms of its general impact on industry structure, as well as its specific impact on each competitor. In the post cold-war global environment, with technological changes of all types occurring with lightening speed, it is truly an exciting time to be a strategic planner. Pass the aspirin, please. |
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