Do Acquisitions Bear Fruit? A Pragmatic Perspective

Recently, I was interviewed in my capacity as a tenured corporate director of public companies by Corporate Board Member magazine of New York Stock Exchange's Governance Services, on the following subject: "Does M&A Bear Fruit?" Therefore, I took the opportunity to sit back and reflect on my hands-on experience as well as observations on mergers and acquisitions in the corporate world. In this article, instead of covering both M and A, I am jotting down my thoughts in summation on the acquisitions part of M&A.

Globalization has propelled acquisitions, and acquisition activities have fueled globalization. For the last two decades, a plethora of megadeals and various sizes of acquisitions have been transacted; some are deemed fabulously successful, but a significant share of deals are subpar, at best, to the desired results—if not a total disappointment.

Acquisition is an effective tool for a company’s growth as a part of corporate growth strategy; and it is one of the top fiduciary duties of a company board’s governance oversight. It is highly recognized that it could be faster and/or more economical to buy something than grow it organically. However, statistically, the acquisition failure rate is quite high.

The often targeted “synergy” has been an over-stated reason for acquisition. Achieving synergy is easier said than done. As Warren Buffett puts it in the Berkshire Hathaway’s 2017 Annual Report, “...As is in marriage, business acquisitions often deliver surprises after the I do’s.” Therefore, how to maximize payoff and mitigate potential failure should be on the mind of every business decision maker.

To deliberate the plausible questions before initiating an acquisition should be a prerequisite. Questions include: What are the essential elements an acquisition needs to have in order to be successful in the long term? What questions should directors ask management to ensure a deal is a good decision? How does a board ensure management’s proposal is aligned with company strategy? Can this acquisition change the company’s growth trajectory? Can the resources of the acquired company (or assets) substantially improve the product/service in ways that customers would pay more for (profit margin increase)? What are common pitfalls in initiating and executing an acquisition?

When considering an acquisition, the intent, thus the approach, can be divergent, ranging from the long-term sustainability to the short-term gain. The preparation also varies with the company’s historical track record—companies that have “routinely” conducted acquisitions with all lessons learned vs. companies that have not.

Long-term goals are the differentiating essence in this process, meaning beyond a CEO’s tenure with the company. Some acquisitions that are carried out are intended to boost immediate earnings per share (EPS) without having the well-thought-out study and more importantly, the necessary knowledge about future potentials of the acquired entity vis-a-vis anticipated market, technology, and competitiveness.

As an acquisition moves through the four main phases—target selection, pricing evaluation/negotiation, due diligence, and integration, the following top five essential elements are to be brought to the center stage:

  • Articulation of the sound purpose with clarity
  • Value determination by calculating the impact on profits from the acquisition vs. weighted-average cost of capital along with other metrics
  • Validation of assumptions
  • Ability to pull the plug in due diligence
  • CEO’s broad vision, holistic knowledge and well-rounded ability

Prior to pursuing an acquisition strategy, it is desirable to position the company to aspire to the culture of long-term growth. When there is a proposed acquisition target on the table, the board and management need to:

  • Ensure the understanding of the fundamental reason for this acquisition and how and why it is aligned with strategy (even revisiting the current strategy, is it valid and effective?)
  • Have a deeper deliberation on the reason and the purpose of an acquisition
  • Ask how to avoid, “It looks good, but not really.”
  • Define when/who/what: timing, resource capability, what-to-do after transaction (a plan)
  • Verify the perception of fit: comprehensive plan, rationale and narrative to be understood
  • Deliberate on how to avoid common pitfalls

The top common pitfalls that are likely encountered in an acquisition endeavor, which could exert deleterious effects on the company’s long-term performance include:

  • Overpaying
  • Overleveraging
  • Company (asset) purchased for the wrong purpose
  • Company (asset) purchased for the wrong reason
  • New businesses integrated into misfit business models

When the acquired entity is bought at too high a price, everything else becomes less important and it can hardly be a good investment.

In order to eschew the common pitfalls, what questions should be asked and answered to ensure a deal is a good decision? Below are some examples of questions to be addressed:

  • Is this for cost-saving (in fixed cost, in scale or for cross-selling)?
  • Is this for footprint expansion (strategic geographic locales)?
  • Is this for gaining a greater market share to achieve greater efficiency (improved market reach and industry visibility)?
  • Is this for securing current leading position (command a price premium or better technology or better manufacturing)?
  • Is this for diversification of business portfolio (a new way to do business)?
  • Is this for re-positioning in the industry’s value chain?
  • Is this a defense against commoditization?
  • Is this for “not missing out on the next big thing”?
  • Does the acquisition alter or change business model? If so, what are the tactics?
  • Is this to aim at a jump-start transformative growth and change the growth trajectory (buying innovations)?
  • Is this for a new business model as platforms for transformative growth? If so, is the autonomy in order?
  • What are behind those numbers including today’s anticipated market, technology, manufacturing, customers, etc.?
  • What other synergies will be obtainable after the acquisition?
  • Does a bolt-on acquisition or platform acquisition make more strategic sense under the company’s specific environment?

The last phase of acquisition involves the nuts and bolts of integration. The success of acquisitions depends on how well the management can integrate the acquired entity into the company while maintaining the efficiency of day-to-day operations during and after the acquisition. To foresee how integration will play out, we must be able to describe exactly what we are buying. Albert Einstein speaks of it this way: “You do not really understand something unless you can explain it to your grandmother.”

This also brings up another question: Can a company synergistically and advantageously integrate an acquired entity into the parent company if the company has not been able to demonstrate the ability for organic growth?

The ultimate success of a public company is typically measured by shareholder long-term returns and the value creation for all stakeholders. The board of directors should be prudent when considering potential transactions, as acquisitions do not guarantee increased shareholder returns. An owner-oriented culture certainly adds additional value to executing acquisitions.

Needless to say, there have been innumerable success stories in elevating a company’s top-line and bottom-line in a timely manner, thus the long-term shareholder returns, through well-thought-out and adroitly executed acquisitions. It is all up to the company!

Appearance

Dr. Jennie Hwang will present a lecture on "Assembly Integrity and Reliability" at the SMT Hybrid Packaging International Conference on May 17, 2017 in Nuremberg, Germany.

This column originally appeared in the May issue of SMT Magazine.

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2017

Do Acquisitions Bear Fruit? A Pragmatic Perspective

05-02-2017

Acquisition is an effective tool for a company’s growth as a part of corporate growth strategy; and it is one of the top fiduciary duties of a company board’s governance oversight. However, statistically, the acquisition failure rate is quite high. In her column this month, Dr. Jennie Hwang reflects on her hands-on experience as well as observations on mergers and acquisitions in the corporate world.

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2016

The Theory Behind Tin Whisker Phenomena, Part 5

11-23-2016

In this installment of the series on the theory behind tin whisker phenomena, Dr. Jennie Hwang completes the discussion of key processes likely engaged in tin whisker growth—crystal structure and defects.

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New Year Outlook: China’s Five Year Plan

01-25-2016

In this article, Dr. Jennie Hwang writes about the latest developments in the current global economic landscape, as well as mega-technological trends, which include: the highlights of macro-economy outlook, China factor, oil dynamics, cyber security, and grand challenges in technology and the path forward.

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2015

A Look at the Theory Behind Tin Whisker Phenomena, Part 3

11-05-2015

The third installation in Jennie Hwang's five-part series on tin whisker phenomena continues the discussion on key processes engaged in tin whisker growth. She discusses the energy of free surface, recrystallization, and the impact of solubility and external temperature on grain growth.

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The Theory Behind Tin Whisker Phenomena, Part 2

08-06-2015

In the second part of this article series, Dr. Jennie Hwang writes that a plausible theory of tin whisker growth can be postulated through deliberating the combination and confluence of several key metallurgical processes.

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The Theory Behind Tin Whisker Phenomena, Part 1

05-27-2015

In this first article of a five-part series, Dr. Jennie Hwang goes back to basics as she discusses the theory behind the tin whisker phenomena--the reasons and mechanisms behind its occurrence--as well as how tin whiskers can be mitigated in the plating process.

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New Year Outlook: What Can We Expect in 2015?

03-04-2015

Dr. Jennie Hwang takes a long view on market thrusts in the anticipated global economic landscape, as well as mega-technological trends in selected areas deemed timely and relevant to the industry: macro-economy, oil dynamics, China factor, cybersecurity, and grand challenges in technology and the path forward.

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2014

2014: Year-end Review

12-31-2014

In her latest column, Dr. Jennie S. Hwang reviews how predictions in her January 2014 column actually panned out. She goes through the key sub-topics that directly or indirectly impact the industry in terms of macroeconomics, business environment, technology, and the global marketplace. By and large her 2014 outlook was on or close to target.

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Tin Whiskers, Part 6, Preventive and Mitigating Measures: Strategy and Tactics

09-24-2014

In this installment of the tin whisker series, Dr. Jennie S. Hwang takes a look at the preventive and mitigating measures--the strategy and tactics. She says an effective strategy for prevention and mitigation starts with a good understanding of the causations of tin whiskers. A smorgasbord of material and technique options are offered as a guide to prevent or retard tin whiskers.

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Capsulization

08-06-2014

Since lead-free implementation, concerns about tin whiskers have intensified. For the past 12 years, studies and research by various laboratories and organizations have delivered burgeoning reports and papers, and Dr. Hwang has devoted an entire series to this subject. This article aims to capsulize the important areas of the subject.

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Tin Whiskers, Part 5: Impact of Testing Conditions

05-21-2014

Dr. Jennie S. Hwang says, "Real-life stresses may lead a different tin whisker behavior as in accelerated tests (temperature cycling, elevated temperature storage). The alloy-making process to achieve homogeneity needs to be taken into consideration. For an 'impurity' system, how the process that adds elements into tin could also affect the whisker propensity."

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Tin Whiskers, Part 4: Causes and Contributing Factors

03-26-2014

According to Columnist Dr. Jennie S. Hwang, nucleation and growth can be encouraged by stresses introduced during and after the plating process. The sources of these stresses includes residual stresses caused by electroplatin, additional stresses imposed after plating, the induced stresses by foreign elements, and thermally-induced stresses.

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New Year Outlook: What Can We Expect in 2014?

01-29-2014

In her latest column, Dr. Jennie Hwang takes a long view on market thrusts in the anticipated 2014 global economic landscape, as well as technological trends in selected areas important to the SMT industry. Readers, pay attention--her predictions for 2013 were extremely accurate.

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2013, A Year-End Review

01-09-2014

For this year-in-review column, Dr. Jennie S. Hwang checks on whether her January 2013 column, "Outlook for the New Year," is on or off target. She addresses the key sub-topics that directly or indirectly impact the industry in terms of business environment, technology, and global marketplace to see how her predictions actually panned out.

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2013

Tin Whiskers: Concerns & Potential Impact

11-26-2013

What is the biggest concern about the growth of tin whiskers? A simple answer is "uncertainty." If or when tin whiskering occurs, what are likely sources of uncertainty or potential adverse impact? Dr. Jennie Hwang explains that concerns and impact concerning tin whiskers primarily fall into one of four categories.

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Tin Whiskers: Phenomena and Observations

10-09-2013

Tin whisker reflects its coined name. It has long been recognized to be associated with electroplated tin coating and most likely occurs with pure tin. Its appearance resembles whiskers. However, whiskers can also form in a wide range of shapes and sizes, such as fibrous filament-like spiral, nodule, column, and mound.

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Cyber Security: From Boardroom to Factory Floor

08-21-2013

Cyber attacks are and will continue to be a huge concern to U.S. corporations in the foreseeable future. It's a matter of when, not if. It is not industry-specific and every company will have to deal with this challenge. The earlier preparation is made, the better a company is positioned to fend off the attack.

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SMT Perspectives and Prospects: Cyber Security - From Boardroom to Factory Floor

08-21-2013

Cyber attacks are and will continue to be a huge concern to U.S. corporations in the foreseeable future. It's a matter of when, not if. It is not industry-specific and every company will have to deal with this challenge. The earlier preparation is made, the better a company is positioned to fend off the attack.

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Tin Whiskers: Clarity First

06-11-2013

Lead-free solder comprises a wide array of alloy systems and each system can be modified in numerous ways. A test scheme to represent lead-free is a daunting task with an astounding price tag. Dr. Jennie Hwang advises that any tin whisker propensity study be conducted with a specific alloy composition, as clarity is the name of the game.

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SMT Perspectives and Prospects: Conflict Minerals: A Snapshot

04-03-2013

As the supply chain becomes increasingly complex and global, with an ever-increasing number of suppliers, full traceability of conflict minerals throughout the global supply chain is a daunting task. To comply with the SEC’s reporting and disclosure requirement, a company must formulate a comprehensive program to achieving traceability and transparency.

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SMT Perspectives and Prospects: SAC System, A Revisit

03-13-2013

In compliance with the RoHS Directive initiated by the EU and later deployed globally, SAC305 of SnAgCu (SAC) system has been used as a lead-free solder interconnection alloy for both second- and third-level interconnection since the implementation of lead-free electronics. After a 10-year run, Dr. Jennie Hwang takes a look at SAC305 for IC packages and PCB assembly.

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SMT Perspectives and Prospects: Outlook for the New Year

02-06-2013

After protracted high unemployment and lack of a speedy recovery in the U.S., and in the absence of clear solutions to the Eurozone's financial crisis and China's lower manufacturing activities in 2012, will the grim global economic outlook extend to 2013?

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SMT Perspectives and Prospects: 2012 Year-End Review

01-16-2013

Dr. Jennie S. Hwang compares the past year to predictions made in her January 2012 column, "What Can We Expect in 2012?" including business, technology, and global marketplace issues. She feels that, overall, 2012 was another intriguing year filled with both wanted and unwanted events.

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2012

SMT Perspectives and Prospects: Can Microstructure Indicate a Good Solder Joint? Part IV

11-27-2012

How does one examine solder joint microstructure? Is the microstructure important? This month, Dr. Jennie S. Hwang continues a series that addresses the practical aspects of solder joint microstructure and what it can tell us about solder joint reliability. The focus of this offering is the role of the phase diagram in microstructure.

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SMT Perspectives and Prospects: Can Microstructure Indicate a Good Solder Joint? Part III

11-06-2012

How does one examine solder joint microstructure? Is the microstructure important? This month, Dr. Jennie S. Hwang continues a series that addresses the practical aspects of solder joint microstructure and what it can tell us about solder joint reliability.

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SMT Perspectives and Prospects: Can Microstructure Indicate a Good Solder Joint? Part I

09-11-2012

How does one examine solder joint microstructure? Is the microstructure important? This month, Dr. Jennie S. Hwang begins a series that addresses the practical aspects of solder joint microstructure and what it can tell us about solder joint reliability.

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SMT Perspectives and Prospects: 100 Points on Lead-Free Performance and Reliability, Part 2

08-21-2012

In the final of a two-part series, Dr. Jennie S. Hwang takes a wide, sweeping look at the history, timeline, highlights, and future projections for lead-free manufacturing.

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2011

Reliability of Lead-Free System: Part II, The Role of Creep

10-26-2011

The degradation of a solder joint is inevitable. The solder joint intrinsic degradation process engages two scientific phenomena--fatigue and creep. In this article, industry expert Dr. Jennie S. Hwang continues her look at the reliability of the lead-free system with a closer examination of the latter.

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Reliability of Lead-Free System: Part I, Solder Joint Fatigue

09-14-2011

Industry expert Dr. Jennie S. Hwang continues her look at the reliability of the lead-free system this month with a closer examination of solder joint fatigue. Fatigue is one of the most likely culprits for material failure--regardless of metals, polymers or ceramics.

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