Chapter 7: Merger and Acquisition Strategies 211Related Acquisitions
Acquiring a firm in a highly related industry is called a related acquisition. Through a
related acquisition, firms seek to create value through the synergy that can be generated
by integrating some of their resources and capabilities.
Cisco Systems designs, manufacturers, and sells networking equipment. Over time
though, the firm has engaged in related acquisitions, primarily as a foundation for being
able to compete aggressively in other product markets. For example, as software becomes
a more integral aspect of all networking products, the firm is making plans to acquire
small- and medium-sized software companies. Such purchases appear to support the
belief that Cisco is committed to competing successfully in the SDN (software-defined
networking) space. Over the past few years, Cisco acquired Insieme Metworks, Tail-F,
and Cariden to elaborate its SDN plans. Acquiring companies in related industries is a
common practice for Cisco, and it is a practice that, in some analysts’ eyes, has “opened
up market opportunities on many occasions throughout the firm’s history.”^26
7-2b Overcoming Entry Barriers
Barriers to entry (introduced in Chapter 2) are factors associated with a market, or the
firms currently operating in it, that increase the expense and difficulty new firms encoun-
ter when trying to enter that particular market. For example, well-established competitors
may have economies of scale in manufacturing or servicing their products. In addition,
enduring relationships with customers often create loyalties that are difficult for new
entrants to overcome. When facing differentiated products, new entrants typically must
spend considerable resources to advertise their products and may find it necessary to sell
below competitors’ prices to entice new customers.
Facing the entry barriers that economies of scale and differentiated products create, a
new entrant may find that acquiring an established company is more effective than enter-
ing the market as a competitor offering a product that is unfamiliar to current buyers. In
fact, the higher the barriers to market entry, the greater the probability that a firm will
acquire an existing firm to overcome them. For example, Scripps Networks Interactive,
Inc., the niched lifestyle-cable-channel with a portfolio including the Food Network,
HGTV, and Travel Channel, wants to expand internationally, given the growth potential
of markets outside the United States. Rather than establish its own operations in multiple
international markets, Scripps is acquiring existing firms to overcome entry barriers that
exist for various reasons, such as product loyalty. Recently, Scripps took a controlling
stake in Polish TV operator TVN with the possibility of purchasing the remaining part
of the firm in the future.^27 In light of TVN’s “incredible portfolio of channels and ser-
vices,” Scripps’ executives saw this transaction as “an important milestone in the ongoing
strategic development of the firm’s international business.”^28
As this discussion suggests, a key advantage of using an acquisition strategy to overcome
entry barriers is that the acquiring firm gains immediate access to a market that is attractive
to it. This can be especially important for firms seeking to enter international markets, as is
the case for Scripps Networks Interactive. We further discuss cross-border acquisitions next.Cross-Border Acquisitions
Acquisitions made between companies with headquarters in different countries are called
cross-border acquisitions.^29 Historically, North American and European companies were
the most active acquirers of companies outside their domestic markets. However, today’s
global competitive landscape is one in which firms from economies throughout the world
are engaging in cross-border acquisitions, and for a host of reasons. In the Strategic
Focus, we discuss different cross-border acquisitions that are being pursued or have been
completed recently and are products of different strategic rationales.