Monday, July 11, 2016

Searching for Synergies in M&A: Insights from Top B.Com Colleges in Delhi NCR

Ishan Institute of Management & Technology, one of the top B.Com colleges in Delhi NCR has been active in exploring the elements of successful mergers and acquisitions that create shareholder value. As such the biggest merger and acquisition story of the year so far is the acquisition of LinkedIn by Microsoft. Priced at USD 26 billion and USD 192 per share it is truly a big ticket acquisition. However Microsoft does not have a very bright corporate history of acquiring companies. Some of the biggest acquisitions by Microsoft in its recent history have not fetched shareholder value as promised. At all top commerce colleges in Delhi NCR the academic community in their lectures regularly focus on the existence of synergies as a precondition to the success of mergers and acquisitions. In reality though it is hard to explore and examine the prospects of synergistic effects in mergers and acquisitions. In the context of the Microsoft acquisition of LinkedIn we take a look at some of the indicators of synergies in mergers and acquisitions.

Synergies of Revenue Post Acquisition

LinkedIn has a membership base in more than 20 countries and the headcount of members stands at approximately 433 million. The leading professional networking site gets 60% of organic traffic from mobile, gets 45 billion quarterly page reviews and has 7 million active job listings. These figures translate into revenues of USD 3 billion. LinkedIn has a total addressable market of USD 115 billion and Microsoft has a total addressable market of USD 200 billion, thereby leading to a combined TAM of USD 315 billion which represents an increase in TAM size by 58%. This synergy is based on pure arithmetic calculation without taking into consideration the fact that Microsoft is a cloud services provider but is not the only one and faces stiff competition from Google. Microsoft offers cloud services and applications largely to the professional segment but falls short in terms of product development in apps on account of two reasons. First Microsoft lacks a solid search engine like that of Google. The fact that Google search comes built into the Google user account as an application is a huge stimulant for Google users to stick to Google. Second Microsoft’s Internet Explorer as a web browser is restricted to being second best worldwide and still has no answers to Google chrome. Microsoft has recently tried to take the battle to Microsoft with a corporate statement that the usage of Google chrome makes the personal computer slow. The use of Google chrome gives a default option of setting Google search as the home page. This shall continue to bother Microsoft because of the way in which search engine marketing and search engine optimization affect the revenue streams from sponsored search results, advertisements and pay per click dynamics. We are not very sure if Microsoft has figured that into account while looking for synergies in revenue and TAM size. To be precise Microsoft as a cloud services enterprise lacks a unique value proposition and thus does not offer the exclusivity to its users and hence does not really cater to the obligations of the VRIO(value, rareness, non-imitability and organizational fit) framework. Where is the non-imitable value proposition? There are other cloud services users who can still access LinkedIn although not as an application built into their professional cloud account. Can Microsoft shut the door on non-Microsoft cloud users for having access to LinkedIn? There is a serious question to be answered.

Synergies from Organizational Structures and Staff

The synergies from the blending of organizational structures and staff deserve a scrutiny. The corporate statement issued by Microsoft in the aftermath of the acquisition asserts that LinkedIn will retain its distinct brand, culture and independence. Jeff Weiner shall remain the CEO of the newly formed company and report to Satya Nadella while on-boarding the senior leadership team of Microsoft. It is worthwhile to note that Microsoft had adopted a similar approach in the last acquisition that it had done. Microsoft had acquired the mobile division of Nokia and kept the Nokia brand alive for a few months and then later started production of mobile phones under the brand of Microsoft. Is LinkedIn a more valuable brand than Microsoft? Should LinkedIn be allowed to retain its unique brand and culture? How exactly can the staff teams of various departments be reorganized under the new company that shall be formed? What should be the proposed organizational structure post acquisition? How shall the teams of managers and senior executives align goals at the tactical and operational levels? The management of Microsoft has maintained silence on these issues. Probably the silence is deliberate and understandable from the point of view of Microsoft CEO Satya Nadella but demands an answer. How can the staff of the two companies shed the baggage of history and work together in a reformed business environment that is being dominated by cloud services? At Ishan Institute of Management & Technology, one of the top B.Com colleges in Delhi NCR, we are not apprehensive on this question but are waiting for things to unfold on the organizational front.

Ishan Institute of Management & Technology, one of the top B.Com colleges in Greater Noida is in the process of collecting data and observing the biggest acquisition deal with interest for academic purposes and aims to introduce a case study on the same for commerce curriculum.