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PROFITABLE
GROWTH BY
ACQUISITION
Richard T. Bliss
The subject of this chapter is growth by acquisition; few other business transac-
tions receive more scrutiny in both the popular and academic presses. There are
several reasons for this attention. One is the sweeping nature of the deals, which
typically result in major upheaval and job losses up to the highest levels of the
organizations. A second is the sheer magnitude of the deals—the recently an-
nounced merger between Time-Warner and AOL, worth more than $150 bil-
lion, exceeds the annual GDP of 85% of the world’s nations! Thirdly, the
products involved are known to billions around the globe. Daimler-Benz, Coca
Cola, and Louis Vuitton are just a few of the world-renowned brand names re-
cently involved in merger and acquisition (M&A) transactions. Finally, the per-
sonalities and plots in M&A deals are worthy of any novelist or Holly wood
scriptwriter. The 1988 acquisition of Nabisco Foods by RJR Tobacco—at that
time the largest deal ever, at $25 billion—was the subject of a New York Times
best-seller and a popular film, both called Barbarians at the Gate.Since then,
there have been numerous other best-selling books and movies based on real
and fictional M&A deals.
In spite of this publicity and the huge amounts of money involved, it is im-
portant to remember that M&A transactions are similar to any other corporate
investment, that is, they involve uncertainty and the fundamental tradeoff be-
tween risk and return. To lose sight of this simple fact or to succumb to the
emotion and frenetic pace of M&A deal-making activities is a sure path to an
unsuccessful result. Our goal in this chapter is to identify the potential pitfalls
you may face and to create a road map for a successful corporate M&A strateg y.