Question by Pengfei Sun on Apr 6, 2014
Q. How do we define a successful acquisition?
Your question had two parts and I am answering the first part here as I have not analyzed the potential Uniqlo – J. Crew deal that you referred to in the second part to your question. The answer to the success question really is deceptively simple. It depends on the goals the acquirer had for the company it acquired. If the acquisition delivers on the reasons for undertaking the acquisition, it is a success.
In some acquisitions, the main goal is to acquire the acquired companies IP. Thus, while LG Electronics never did much with the Zenith brand, LG Electronics insiders will tell you that the TV patents that Zenith owned more than justified the acquisition of the company. The same could be said about Apollo Tyres‘ acquisition of Dunlop Africa. They wanted acquire the manufacturing capability for radial tyres to enable them to expand under the Apollo brand name. Tata Tea on the other hand acquired Tetley for the brand and to move in to the branded beverage business where margins were far higher. Today Tata Tea has sold off most of its tea estates and has re-branded itself as Tata Global Beverages. Clearly, another successful acquisition.
But, not all acquisitions are successful. Thus Geely‘s acquisition of Volvo has been a difficult one. The company has struggled to sell Volvo cars under the new management. One could also look at TCL‘s acquisition of Thompson and say that was not successful. The acquisition almost destroyed TCL. In that acquisition, the goal of the acquisition was to acquire the Thompson name and the rear projection TV technology in which Thompson was a world leader. Sadly for TCL, their prediction that rear projection TVs would be the next big thing in TVs did not pan out. The market moved rapidly to LCD and plasma TVs, leaving TCL with a technology that was not salable.
So, to judge whether an acquistion is successful, you need to understand the original goal that the acquirer had, and then judge if the acquisition helped them reach the desired goal. Tata Tea we can say successfully acquired Tetley. TCL on the other hand was unsuccessful with its acquisition of Thompson.