Professional Documents
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Introduction
The key principle behind buying a company is to create shareholder value over and above that of the sum of the
two companies. Two companies together are more valuable than two separate companies - at least, that's the
reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong
companies will act to buy other companies to create a more competitive, cost-efficient company. The companies
will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these
potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form
of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:
Staff reductions
Economies of scale
Acquiring new technology - To stay competitive, companies need to stay on top of technological
developments and their business applications. By buying a smaller company with unique technologies, a
large company can maintain or develop a competitive edge.
1. The Target company shold share same visions as with cisco or atlest has potential to pursue its visions
and missions in the longri=un.
2. Quick value creation with in a shortest possible time period
3. Thre must be a matching chemistry between the target company and Cisco.
4. There must be future value addition for its shareholders and other stake holders such as employees,
customers, and business partners
5. The target company should be in the proximity to theparent companies location i.e related to same
geographical location.
Potential targets those meet all of the 5 criterias are actively persued and allowed to be integrated with cisco.
Thus through its unique acquisition strategy cisco ensures that its target company should posses minimum
risk on product side as uit has already passed its r&D phrase yet ready to be introduced in to the market by
using ciscos marketing platform.Each acquisition by it has been ensured to payoff at a very early period of
investment so that the parent company can afford to keep thenewly acquired resources and man power with it.
Strict due diligence from different perspectives such as HR, Manufacturing, Marketing and Engineering has
to be done by ciscos cross-functional team to avoid future discrepancies.
Cisco only pursue friendly takeovers ,and avoids hostile takeovers thus ciscos acquition team conduct the
acquition processes by friendly talks , negotiations and not by competitive bids or auction bids.
A two year non compete agreements with the target companies , key executives and technical personeal and a
provision of Ciscos stock option that will be vested over the time priod.
Ciscos acquisition team belives in quick acquitions thus its involvements in the target company begins from
the vary day of announcement of acquisition process mainly by physical presence of its IT personeal , HR or
engineering personeal.
Cisco offers attractive remunation packages to the newly acquired manpower which is often higher then their
existing company could afford to pay them thus was able to put tap on employee turnover.
In a nutshell Cisco has developed a twofold integration approach such a (a) Personel Intgration and (b)
Product integration and ensures that both gets implemented beforehand the completion of the integration
process.
3. Could Cisco have achieved the same results without the values?
No , reason need to be answered?
4. Type of challenges that business units face with the M & A process.
The Global recession led to a significant decrese in M& A activity , other factors such as limited access to
cash and rising uncertainty across markets made it difficult for companies to strike a successful M&A deal
.following are some challenges normally faced by firms involved in the acquisition activity.
1. Companies need to approach M&A more strategically as well as Due- deligence required
inaddition to greater visibility at the executive management level in also needed.
2. Identification of appropriate targets/ Buyers at the pre-phase of the deal . top challenge for buy
side is the identification of appropriate acquisition tagets along wiyth other requirments such as
appropriate financial valuation , setting and executing the m&A strategy etc. on the sale side the
main struggle is identifying appropriate buyers , to differenciate between hostile buyers and
friendly buyers,as well as other matters that are challenging like information gathering and
evaluation of indications and bids , understanding the history of potential buyers and gathering
market information in order to strike a better deal.\
3. Challenges for M&A management is the effective measurement of performance as most of the
companies donot have a systematic approach for cost and synergy management and are not
familier with evaluation of longterm effects of the proposed M&A activity.
4. Difficult to manage an effective and efficeant collaboration and communication between internal
and external stakeholders
Success of merger and acquisitions depends on the people who drive the business, their ability to drive, lead,
and formulate strategy, execution and implementation. It is very important to involve human resources in
merger & acquisition as it involves people and has an impact on key people issues. Human resources play an
active role in the change process by offering their interventions to help ensure a successful merger and
acquisition.
Roles of Human Resources in M&A process
Cisco used a variety of metrics to measure the success of each acquisition effort. Typical metrics include the
following:
Retain 100 percent of the employees who transition from the acquired company.
Sustain the acquired company's current product and service revenues (as well as current levels of service
and support) during and after the transition to Cisco.
Launch new Cisco products based on the acquired products and technologies.
As part of the integration approach and plan, Cisco applies the following tactics to enhance the customer
experience:
Repackage and rebrand an acquired product or technology as a Cisco product when appropriate.
Identify potential new product and service revenue opportunities within the acquired company's existing
customer base and sales prospects.
Provide the new customers with a single interface for product support and service and maintain customer
satisfaction.
Integrate the sales channels and services functions of Cisco and the acquired company as appropriate.
Cisco has evolved a unique approach to integrating acquired companies. This approach encompasses the following elements:
Formalized and centralized integration management through a designated team in the Cisco Business Development
group.
Cross-functional teams for each acquisition that plan, manage, and monitor integration activities across Cisco.
Standard principles, metrics, tools, methods, and processes that can be repeatedly applied to new integration efforts,
yet are adaptable to the unique issues and parameters of each deal. These standards are defined both at the
corporate level and within the many Cisco departments involved in acquisition integration.
Extensibility of the acquisition integration model to other major change events, such as divisional consolidations, divestitures,
or acquisitions by Cisco divisions
Integration Principles
The following principles guide Cisco acquisition integration activities:
Orientation. Set common standards so that all internal organizations and integration activities are bring into line to
achieve the business goals of the acquisition.
Incorporating the lessons learned from each acquisitionCisco uses a variety of qualitative and quantitative metrics to measure
the success of each acquisition integration effort. Typical metrics include the following:
Retain 100 percent of the employees who transition from the acquired company.
Sustain the acquired company's current product and service revenues (as well as current levels of service and
support) during and after the transition to Cisco.
Launch new Cisco products based on the acquired products and technologies.
As part of the integration approach and plan, Cisco applies the following tactics to enhance the customer experience:
Repackage and rebrand an acquired product or technology as a Cisco product when appropriate.
Identify potential new product and service revenue opportunities within the acquired company's existing customer
base and sales prospects.
Provide the new customers with a single interface for product support and service and maintain customer
satisfaction.
Integrate the sales channels and services functions of Cisco and the acquired company as appropriate.
and support, and finance. For information on Cisco IT integration practices, refer to the case study "IT Acquisition Integration"