Inorganic growth via mergers & acquisitions can be a very effective way for an organization to increase shareholder value. However, research has shown that success rate is less than 50%, and most of the values are obtained by the seller (BCG, Kees Cools, 2005). In spite of the relatively unappetizing odds of success in M&A, the Boston Consulting Group has found out that companies in general perform better when they regularly engage in M&A versus those that rely on organic growth – capturing 12.4% return rather than 9.6% return of the organic strategy.
In addition, companies are able to gain more market share and are able to grow twice as fast.
While M&A can be an important strategy for companies like HTC, companies must define the role of M&A in their corporate strategy, conduct careful valuations of the acquisition / target industry market, and develop a well-defined integration plan to be successful.
Since the acquisitions by HTC in 2011, HTC’s stock has fallen by more than 45% year to date. Although the steep drop can be due to over-evaluation of the stock to begin with from institutional investors, the company stock may have had further downside if there had not been innovative new technologies for HTC. By having new business models through acquisitions, HTC has been able to improve its market position and prevent the accelerated competition from
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Samsung. The acquisitions by HTC have yet to flourish, although the success of them will mainly depend on the careful execution of company. The continuous attempt for acquisitions will allow HTC to improve its integration processes. In the long term, inorganic growth through acquisitions will be a key part to HTC’s business strategy.
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Appendix
Taiwan IT background
The emergent of Taiwan’s information technology (“IT”) industry is hard to pinpoint but many said the beginning initiated in the 1970s when foreign enterprises started to shift low level techniques, such as Packaging & Testing, to Taiwan. Today, Taiwan is considered one of the most advanced technology economies in the world while being only a fraction of a size compared to the United States – 1/250th and China – 1/260th.
Although it was arguable whether Taiwan became such a crucial part of the IT industry simply by being there at the right time or if it indeed had a competitive advantage. There were relatively little research studies available to determine the reasons behind the exponential growth of IT in Taiwan. For example in Dedrick and Kraemer’s Asia’s Computer Challenge: Threat or Opportunity for the United States and the World? (2000), the author adopted a cross cultural perspective to compare and examine the reasons behind success in Asia, not just Taiwan alone.
There simply weren't enough studies to understand that history. However, what researchers did know was that Taiwan IT emerged to some extent because of the Government’s decision to enter the IC industry. The government put tremendous amount of high emphasis into research &
development (“R&D”). Although foreign enterprises helped Taiwan by introducing
semiconductor packaging, these enterprises did not have the capability to facilitate the political infrastructure that Taiwan needed for vertical integration. To put it another way, foreign
companies lacked the willingness and the domestic enterprises lacked of resources, which
ultimately mandated the government to intervene and steered Taiwan to IC direction (Addison, C, 1st chapter of Silicon chapter reference). In 1973 the Industrial Technology Research Institute (“ITRI”) was established as a first step for Taiwan’s future, which was a spin-off of United
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Microelectronics Corporation (“UMC”) in 1980. Taiwan Semiconductor Manufacturing
Corporation (“TSMC”) was established in 1986, Taiwan Mask Corporation was formed in 1988, and the Vanguard International Semiconductor Corporation was also initiated in 1994.
(http://www.itri.org.tw/)
From 1987 to 2000, the number of IC design companies grew from 30 to 140, with sales revenue increasing from NT$80 billion to NT$1.2 trillion (Terence Tsai, 2006). It was without a doubt that this was the growing period for the Taiwan IT industry. After more than 20 years of development, Taiwan’s semiconductor industry had formed into integrated enterprises in global value chains (Foss, 1996). Taiwan went from packaging and testing of chips to researching, designing, testing, and manufacturing for global brand companies such as Apple, HP and Motorola. Today, Taiwan is the home country to global technology companies such as HTC, Acer, Asus, TSMC, UMC, Mediatek, Largan and TPK.
Motivations – Additional
HTC in many ways are related to some of Taiwan’s biggest branded hardware companies because of its long term history in manufacturing and design. In more detail, the motivation behind writing about HTC comes from the perceived failure of Acer Group.
With the Taiwan IT manufacturing industry blossoming, it was inevitable that a technology leader would emerge. Stan Shih, the founder and Chairman of the Acer Group and who was widely regarded as a high tech visionary, had a long term vision to transform the group into a global high tech corporation. This company started by producing its first computer Micro-Processor MPF-I and with the next two as Apple computer clones. With the success of these products, Multitech, the original name of the company before it was changed to Acer in 1987, joined the IBM PC market. Acer then became a leading PC manufacturer and ranked as top 5
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PC brand (Roy Lin, 2011). Similarly, HTC has become a top brand and manufacturer for smartphones.
There were many changes since the year 2000 as internet became a global phenomenon.
Many people started to use internet as a way of communication and that created a new wave of technological innovation. With computers in popular demand, Acer became a top manufacturer.
However, given the costs associated with manufacturing PCs, the conflicts between its ODM division and the brand side, Acer’s ODM arm, resulted in a spin-off. This spin-off in 2000 of Wistron gave Acer the ability to focus on its PC brand and allowed Acer to manage costs more effectively. Although the shift to branding was a clever decision at that time, technology changed fairly quickly but Acer still focused on hardware. While the shift from manufacturing to branding aided to Acer’s global record high PC market share to 13.5% in 2009, the continuous lowering of costs from competitors (HP, Dell, Lenovo & Asustek) furthered downgraded the attractiveness of the PC industry. The industry was so unappealing that HP, another PC branded manufacturer, announced in August 2011 that it would explore the spin-off of its PC division.
According to the Roy Lin, Marketing Manager at Acer, “PCs are similar to smartphones in the sense that the operating system would be from a supplier such as Microsoft. The only differentiation for PC companies was its hardware and its design. Therefore it is extremely difficult for Acer to charge a premium when our competitor created a similar notebook with Microsoft’s software. Software providers had the bargaining power, not the hardware company.”
With the lack of differentiation between PCs, Acer lost its low cost advantage when the market entered the maturing stage while Apple with its own software and hardware entered its growth stage. Luckily, the open source Android OS created by Google used in HTC’s phones can be deeply modified and thus have room for differentiation. Acer’s lack of software and
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differentiation enhancement led its stock from NT$102.9 in January 15, 2010 to ~NT$35 in September 2011 with Year over Year (“YoY”) PCs Growth adjusted downwards to 10-12%
2012E VS historical 30% YoY growth from 2003-2008A (Dan Tang, 2011).
Post-Merger Risks
Synergy Risks – Financials, Time Horizon, KPI, Synergy goals, execution plans
Structural Risks – Organization & management structural differences, business processes: products, customers, region, output
Project Risks – Human resource capabilities: team leaders, background, integration experiences, expertise
People Risks – Redundancies, relocations, downsizing
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Tables & Additional Figures
a. Cloud Computing – Online video content companies
2011 Revenues (or est. forecasts) Subscribers Status
b. Results of the 2011 Accenture Video-Over-Internet Consumer Usage Survey
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