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Mergers and Acquisitions

Mergers and Acquisitions: Two Vital Questions

Many companies use mergers and acquisitions as growth engines. We’ve seen it with Jean-Coutu and Metro, Bombardier and Airbus, and countless others. Yet more than half of all “business marriages” end in failure. This dreary track record could perhaps be improved if potential partners began by answering two vital questions.

Who should they join forces with?

Obviously, the choice of partner is crucial. In “Google Inc.’s Acquisition of AdMob,” Nikhil Varaiya examines the acquisition of mobile advertising start-up AdMob by search-engine giant Google. How should the young start-up be valued as a stand-alone firm? What would be the financial and other benefits of its acquisition? Would synergies result in the whole being greater than the sum of its parts? In other words, was this company a promising acquisition target?

How should it be done?

Acquiring companies often face serious challenges related to business structures that are set in stone, established ways of doing things, and deeply ingrained habits. This was the problem facing Bill Gregson, CEO of CARA, the Ontario-based firm that acquired the St-Hubert restaurant chain last year. As reported by Alpha Daye Diallo, Russell Fralich, and Andrew Papadopoulos in “Cara Operations: Purchase of St-Hubert and Value Creation,” Gregson faced a tough choice. Should he grant the Quebec company full autonomy or integrate its operations with those of its parent company? Whichever option he chose, imposing his strategic decision on the Quebec icon, a beloved fixture of Quebec culture, would not be easy and called for careful thought.

All in all, it’s far better to provide in-depth answers to these questions before entering into a marriage of economic convenience. Failure to do so could lead to an even more daunting one: “What have we done?”

 
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