Acquisitions have the objective of improving the financials of the acquirer, usually in within a long-term perspective. Companies look for quick growth, cost savings, synergies, and larger size when embarking into an acquisition process. This kind of transaction occurs every day in all continents and helps businesses in becoming more efficient and dynamic.
Below, there are some real-life acquisitions that have taken place over the past decades. The first three examples are successful cases where expectations proved to come true. On the other hand, the last one is an example of a transaction that went wrong with tragic results.
What is a Company Acquisition?
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A company acquisition occurs when one company, the acquirer, purchases and gains control over another company, the target. This transaction can involve the purchase of the target company’s stock, assets, or both, and can be conducted through cash transactions, stock swaps, or a combination of both.
Acquisitions are a strategic tool for companies to expand their operations, enter new markets, enhance their product offerings, or achieve other business objectives such as economies of scale or increased market share.
The process involves negotiation, due diligence, and approval from both companies’ boards of directors, as well as regulatory approval in some cases.
List of 4 Famous Company Acquisitions and Changed the Business World
Here is a list of the most famous company acquisition examples in modern history:
#1 Google Acquires Android
In 2005 Google purchased the startup company Android for just $50 million. Android reportedly developed operating systems for wireless devices that were location-sensitive or personalized for the owner. By that time, Google did not seem like the giant tech that we know these days. It was mostly known as a search engine.
But three years after the acquisition, the first public version of Android was launched with T-Mobile’s G1 phone. Throughout the years, Google has been able to perfectly integrate all its tools and software with Android.
In 2016, it was reported that Google made $31 billion in revenue from Android. Another estimate says that Google receives a contribution of $2.75 per device per year from Android. Although Android is free to be used by any OEM, Google makes money from mobile advertising and Apps sold at Play Store.
That huge amount of money is possible because, as of 2019, Android is the most popular mobile operating system in the world. There are more than 2.5 billion active Android users and, aside from smartphones, Android is also used by smart watches, tablets, smart TVs, cars, and many more electronic gadgets.
Android facilitates the positioning of Google as one of the most influential companies in the technology business. Estimates from the research firm Gartner claim that Android was used in more than 80% of all new smartphones shipped worldwide in 2018.
#2 Disney Acquires Pixar
The Walt Disney Company is a legendary enterprise founded in 1923 and one of the largest media and entertainment corporations in the world. It is the owner of numerous theme parks and television networks, including the American Broadcasting Company (ABC). Since its beginnings, Disney was mainly known by his animated films such as Snow White and Pinocchio, which were adaptations of children’s fairytales.
Pixar Animation Studios was started as a computer graphics division owned by the famous filmmaker George Lucas. In 1986, Steve Jobs purchased the computer graphics division for $10 million and established it as an independent company named Pixar which he co-founded with Dr. Edwin E. Catmull.
In 1995, Pixar Animation Studios impacted the future of filmmaking with the release of its first feature film, Toy Story, which went on to become the highest-grossing film of that year with $362 million gross revenues.
Before the acquisition, there was an agreement in 1997 between the two companies to work together. Within that agreement, Disney had rights only over the films and characters used to produce Pixar’s films, as well as 10 to 15 percent of each film’s revenue as a distribution fee, for 10 years.
Pixar and Disney had ongoing disagreements since the production of Toy Story 2 but they were resolved. Finally, Disney acquired Pixar’s shares for $7.4 billion and Pixar became Disney’s subsidiary in 2006. The company offered 2.3 shares of its stock for each Pixar share, which was a 3.8% premium on the stocks’ closing price.
The success was undeniable. The combination of Pixar’s technological innovation and Disney’s powerful distribution and mass media achieved spectacular results. The following five films released from 2007 to 2011 obtained revenue for approximate $3.5 billion and these included Ratatouille, Wall E, UP, Toy Story 3, and Cars 2. In the subsequent years until 2019, Disney Pixar released other nine films with revenues that totaled almost $7 billion.
#3 Pfizer Acquires Warner-Lambert
In 2000 Pfizer acquired Warner-Lambert for $90 billion in an all-stock deal. The acquisition resulted in the creation of the largest drug company in the U.S. and the second largest worldwide behind Switzerland’s Novartis, ranked by sales.
This is known as one of the most hostile acquisitions in history because Warner-Lambert was originally going to be acquired by American Home Products, a consumer goods company. American Home Products walked away from the deal, resulting in large break-up fees, and Pfizer swooped in.
Pfizer had its eye on Warner-Lambert because of its highly demanded cholesterol medication Lipitor. With the acquisition, Pfizer obtained control of Lipitor’s profits, which amounted to over $13 billion, after some years of co-promotion between Pfizer and Warner-Lambert.
With the addition of Warner-Lambert, Pfizer hoped to be the fastest-growing pharmaceutical company. It added 2,500 sales representatives to its 5,000 workers in the United States.
The combined Pfizer and Warner-Lambert also had a total number of research staff of 12,000 – the largest in the world, along with six state-of-the-art research campuses, and the largest R&D budget with a total of $4.7 billion per year. The new company reached the world’s leading position in various therapeutic areas, including cardiovascular, lipid-lowering, CNS and infectious diseases, with several star products.
Additionally, the huge R&D budget was expected to allow the progress of its development pipeline, which at the time was comprised of more than 138 compounds in areas including central nervous system diseases, oncology, cardiovascular, metabolic and infectious diseases.
#4 Kmart Acquires Sears
Kmart purchased Sears in 2005. The combined companies would operate around 3,500 locations, save $500 million yearly, and obtain at least $300 million per year in cost savings, mostly because of synergies in the supply chain and administrative staff.
The resulting firm, Sears Holdings, experienced higher sales in 2006, but then fell in each of the following nine years. Profits reached $1.5 billion in 2006, but the following years they dropped significantly. Total loses from 2011 to 2016 exceeded $10 billion.
The management team tried to save the chain through a wave of store closures, hour and pay cuts, but sales continued falling. Customer experience deteriorated as the debt increased. Finally, Sears had $6.9 billion in assets but $11.3 billion in liabilities.
Although Amazon took a big part of the retailing industry during that period, other brick-and-mortar retailers performed well. In 2011, Sears lost over $3.1 billion but Walmart made $17.1 billion. Sears filed for bankruptcy in 2018 and it that year its stock prices fell below $1.
Key Takeaways
Strategic Growth: Company acquisitions enable rapid expansion and access to new markets, technologies, or product lines, offering a quicker path to growth compared to organic expansion.
Synergy Realization: Acquisitions often aim to achieve synergies, where the combined performance and financial results of the acquiring and acquired companies are greater than their individual operations, leading to enhanced efficiency, increased revenue, and cost savings.
Complex Process: The acquisition process is complex and multifaceted, involving due diligence, negotiation, and integration phases, and requires careful planning to successfully merge the operations, cultures, and strategies of the acquiring and acquired companies.
Bottom Line
Acquisitions are a common strategy to accelerate the achievement of strategic goals. They take place in every industry and facilitates consolidation and development processes. Some of them go very well and result in stronger and more profitable corporations that push the boundaries of technology, innovation and wellness.
Those are the cases of Google-Android, Disney – Pixar and Pfizer – Warner-Lambert. Other acquisitions proved to be bad decisions that brought massive loses, such as the acquisition of Sears by Kmart.
Frequently Asked Questions
What motivates a company to acquire another company?
Companies pursue acquisitions to achieve strategic objectives such as expanding their market presence, accessing new technologies or products, or realizing cost synergies.
How is the purchase price determined in a company acquisition?
The purchase price in an acquisition is typically determined through negotiations between the acquiring and target companies, often based on a valuation of the target company’s assets, earnings, and market potential, along with premium payments for control of the company.
What are the key steps involved in the acquisition process?
The acquisition process involves several key steps including due diligence to assess the target company’s financials and operations, negotiation of terms, securing financing if necessary, and obtaining regulatory approvals.
How does an acquisition differ from a merger?
An acquisition occurs when one company takes control of another, whereas a merger involves two companies combining to form a new entity, often with shared ownership and control.
