Mergers & Acquisitions Can Result from Strategic Alliances

Alliances frequently result in mergers and/or				Products, Fire and Security Services, Flow
acquisitions. Partnering relationships, such				Control, and Electrical and Electronic
as joint ventures or strategic alliances, can				Components. Through its corporate strategies
sometimes lead to a merger or acquisition				of high-value production, decentralized
situation. After companies work together for				operations, growth through synergistic and
a period of time and get to know one				strategic acquisitions, and expansion through
another's strengths, weaknesses, and				product/market globalization, Tyco has
synergistic possibilities, new relationship				evolved. From Tyco's beginnings in 1960 as a
opportunities become apparent. One could				privately held research laboratory, it has
argue that a joint venture or strategic				transformed into today's multinational
alliance is simply the getting to know each				industrial corporation that is listed on the
other part of a courtship between companies				New York Stock Exchange. The Company operates
and that the real marriage does not occur				in more than 80 countries around the world
until the relationship has been consummated				and had fiscal 1999 revenues in excess of $22
by a merger or acquisition.				billion.

To make the point, Dan McQueen, president, at				In the mid-1980s, Tyco returned its focus to
Fluid Components International (FCI) built a				sharply accelerating growth. During this
Partnering relationship with Vortab, a small				period, it reorganized its subsidiaries into
technology company. Vortab produced static				the current business segments listed above.
mixers, a technology suitable for flow				The Company's name was changed from Tyco
conditioning that complemented FCI's product				Laboratories, Inc. to Tyco International Ltd.
offering. While Vortab also had three other				in 1993, to reflect Tyco's global operations
distribution partners in addition to FCI,				more accurately. Furthermore, it became, and
FCI's volume with Vortab continued to grow to				remains, Tyco's policy to focus on adding
the point that Vortab's technology became an				high-quality, cost-competitive, low-tech
important part of FCI's total sales volume.				industrial/commercial products to its product
After about three years into the				lines that can be marketed globally.
relationship, FCI acquired Vortab.
				In addition, the Company adopted synergistic
Because of the close relationship between				and strategic acquisition guidelines that
Vortab and FCI, when the Vortab was put up				established three base-line standards for
for sale McQueen knew its true value.				potential acquisitions, including:
Resulting from his knowledge, FCI was able to
purchase Vortab at a much more realistic				1. A company to be acquired must be in a
price than Vortab's asking price. The Vortab				business related to one of Tyco's four
technology integrated well with FCI's core				business segments.
competency technology and today FCI also
distributes Vortab through some of its				2. A company to be acquired must be able to
non-direct competitors.				expand the product line and/or improve
				product distribution in at least one of
The following list demonstrates some of the				Tyco's business segments.
specific values created or developed from the
various organizational blending methods:				3. A company to be acquired that will
				introduce a new product or product line must
Â· Operational resource sharing				be using a manufacturing and/or processing
				technology already familiar to one of Tyco's
Â· Functional skill transfer				business segments.

Â· Management skill transfer				Tyco also developed a highly disciplined
				approach to acquisitions based on three key
Â· Leverage (economies of scale)				criteria that the Company continues to use
				today to gauge potential acquisitions:
Â· Capability increases
				1. Post-acquisition results will have an
Mergers				immediate positive impact on earnings;

Mergers occur when two or more organizations				2. Opportunities to enhance operating profits
come together to blend or link their				must be substantial;
strengths. Also in the deal is a blending of
their weaknesses. The hopeful result is a new				3. All acquisitions must be non-dilutive to
more powerful organization that can better				shareholders.
produce goods and services, access markets,
and deliver the highest quality customer				Using its synergistic/strategic guidelines to
service. Mergers offer promise for				acquisitions, Tyco succeeded in significantly
synergistic possibilities. This is achieved				improving the Company's positions in each of
by the blending of cultures and retaining the				its four business segments. During the period
core strengths of each. In this scenario, a				from 1986 to the present, a number of smaller
new and different organization generally				acquisitions were made to strengthen specific
emerges. The goal is a sharing of power, but				product lines or enhance the Company's
usually the strongest rise to the top				competitive position in the various segments.
leadership.				The major acquisitions were:

Exxon - Mobil				Â· 1986 - Grinnell Corporation,
				manufacturers and distributors of industrial
The Federal Trade Commission gave Exxon and				construction products (which with Grinnell
Mobil the green light On November 30, 1999				Fire Protection Systems acquired by Tyco in
for their $80 billion merger. The next day				the 1970s brought back together the two
the transaction was completed. The merged				divisions of the original Grinnell
organization officially became Exxon Mobil				Corporation under the Tyco umbrella).
Corp. The merger actually brings "the
companies back to their roots when they were				Â· 1988 - Allied Tube and Conduit,
part of John Rockefeller's Standard Oil				manufacturers of steel pipe and related
empire. That company was the largest oil firm				tubular products.
in the world before it was busted up by the
government in 1911."				Â· 1989 - Mueller Company, manufacturers of
				water and gas flow control products.
At the 1998 announcement of their intention
to merge, Mobil chairman, Lucio Noto made a				Â· 1991 - Wormald International Limited,
comment about the need to merge. He said,				manufacturers, contractors and suppliers of
"Today's announcement combination does not				fire protection systems and products.
mean rhat we could not survive on our own.
This is not a combination based on				Â· 1992 - Neotecha, manufacturers of
desperation, it's one based on opportunity.				Teflon-lined butterfly/ball valves and
But we need to face some facts. The world has				sampling devices.
changed. The easy things are behind us. The
easy oil, the easy cost savings, they're				Â· 1993 - Hindle/Winn, manufacturers of
done. Both organizations have pursued				high performance butterfly/ball valves.
internal efficiencies to the extent that they
could."				Â· 1994 - Classic Medical, Uni-Patch and
				Promeon, three separate companies each
While part of the deal was the selling of a				involved in providing a disposable medical
Northern California refinery and almost 2,500				product or supplementary products.
gas station locations, the divestiture
represents only a fraction of their combined				Â· Preferred Pipe, manufacturers of forged
$138 billion in assets. Lee Raymond, Exxon				steel products.
chairman, now chairman and chief executive of
the merged company said, "The merger will				Â· Kendall International Co., among the
allow Exxon Mobil to compete more effectively				world's largest manufacturers and
with recently combined multinational oil				distributors of disposable medical supplies,
companies and the large state-owned oil				wound care dressings, bandaging, elastic
companies that are rapidly expanding outside				support and other vascular therapy
their home areas."				compression products.

Exxon Mobil is now like a small oil-rich				Â· 1995 - Tectron Tube, manufacturers of
nation. They have almost 21 billion barrels				pipe and tubular products.
of oil and gas reserves on hand, enough to
satisfy the world's entire energy needs for				Â· Unistrut, manufacturers of metal framing
more than a year. Yet, there is still the				products and services.
opportunity to cut costs. The companies
expect their merger's economies of scale to				Â· Earth Technology Corporation, an
cut about $2.8 billion in costs in the near				environmental consulting firm specializing in
term. They also plan to cut about 9,000 jobs				the design of water and wastewater treatment
out of the 123,000 worldwide.				facilities.

AOL - Time Warner				Â· 1996 -Professional Medical Products,
				Inc., makers of adult incontinence products
On January 10, 2000, Steve Case, chairman and				and other disposable medical products.
chief executive of America Online (AOL), sent
an e-letter to his 20 million members. He				Â· Thorn Security, manufacturer, installer
said, "Less than two weeks ago, people all				and servicer of fire and security systems
over the world came together in a global				worldwide.
celebration of the new century, and the new
millennium. As I said in my first Community				Â· Carlisle, a leading manufacturer of
Update of the 21st Century, all of us at AOL				specialty packaging materials and garment
are extremely excited by the challenges and				hangers.
prospects of this new era, a time we think of
as the Internet Century.				Â· Watts Waterworks Businesses,
				manufacturers of valves, hydrants, and
I believe we have only just begun to see				fittings used primarily in water utility,
clearly how the interactive medium will				wastewater treatment and power generation
transform our economy, our society, and our				markets.
lives. And we are determined to lead the way
at AOL, as we have for 15 years-by bringing				Â· Sempell, a manufacturing and servicer of
more people into the world of interactive				specialty valves used in industrial and power
services, and making the online experience an				generation applications.
even more valuable part of our members'
lives.				Â· ElectroStar, a leading manufacturer of
				complex printed circuit boards.
That is why I am so pleased to tell you about
an exciting major development at AOL. Today,				Â· 1997 - American Pipe & Tube, a
America Online and Time Warner agreed to join				manufacturer of steel pipe, tubing for the
forces, creating the world's first media and				fire protection, fence markets and steel
communications company for the Internet				studs/trusses for the residential and
Century. The new company, to be created by				commercial construction markets.
the end of this year, will be called AOL Time
Warner, and we believe that it will quite				Â· Submarine Systems Inc., the leader in
literally change the landscape of media and				the design, development, manufacture,
communications in the new millennium."				installation, supply and maintenance of
				undersea fiber optic telecommunications cable
The next day newspaper headlines read,				systems.
"America Online, Time Warner Propose
$163-Billion Merger." The Los Angeles Times				Â· ADT, a leading installer and servicer of
said, "In an audacious deal bringing together				electronic security systems.
traditional entertainment and the new world
of the Internet, America Online and Time				Â· Keystone, a leading designer and
Warner Inc. on Monday announced they will				manufacturer of industrial valves, actuators
merge in the largest business transaction in				and accessories marketed worldwide.
history."
				Â· INBRAND, a manufacturer and distributor
The story later revealed the value				of adult incontinence products.
comparisons of the companies. While AOL earns
less than Time Warner, the stock market				Â· Sherwood Davis & Geck, a manufacturer
thinks AOL's shares are worth more. "America				and distributor of disposable medical
Online is valued by the stock market at				products.
nearly twice Time Warner-$173 billion,
compared with $101 billion as of Friday's [1				L. Dennis Kozlowski, chairman of the board
7/00] market close-even though it has				and CEO said, "Tyco is successful because it
one-third Time Warner's annual revenues."				adheres to basic strategies such as being a
The article also stated "AOL earned $762				high-value producer, keeping our business
million on $4.8 billion in sales in the year				simple and close to our markets and
ended Sept. 30 [1999]." AOL chairman, Case				customers, empowering our employees for
wants to move fast. The Times article stated,				greater achievements, while growing
"Case said the two chairman began discussing				internally and through acquisitions." Good
a combination this fall [1999], he has tried				ideas, but too bad about Kozlowski--I guess
to impress upon Levin [Gerald Levin, chairman				one should be careful on how much is spent on
at Time Warner] the need to operate the new				a birthday party?
company at Internet speeds." (We all know the
rest of the story...nothing is forever.)				Irving Gutin, senior vice president at Tyco
				has worldwide responsibilities for corporate
The prophets of gloom are always ready to				development and 30 years of M&A experience.
point out the down side to deals. In UPSIDE				In sharing a conference platform with, his
magazine, Loren Fox reported some of the				conviction was obvious. He said, "We don't
challenges to the marriage. They are:				want to partner, we want to own the whole
				thing-it's easier that way."
Â· "The holy grail of strategic synergy has
been elusive in the media world."				FASB Accounting Rule Change

Â· "In the offline world, it's notable that				The rules of the game are changing. Some of
Time and Warner Brothers have continued to				the accounting benefits of acquisition will
run fairly independently despite a decade as				soon disappear. Spending some extra time with
Time Warner."				your accounting and legal departments could
				prove beneficial in the long-term.
Â· "'From any standpoint, this has not been
a success to date,' says Yahoo President and				George Donnelly, in his article in CFO
COO Jeff Mallett."				magazine writes, "The current state of
				accounting rules is clearly a factor in the
Â· "When you buy the company, you get				frenetic acquisition activity at Cisco
things you don't need."				Systems and Lucent Technologies Inc. Like
				many high-tech companies, the two giants can
Â· "Warner might make these deals easier,				acquire with little drag on their finances,
but it might also bring new risks-even for				because pooling-of-interest accounting
AOL, a veteran of 25 acquisitions over the				enables them to avoid onerous goodwill
last six years. Employees might flee to pure				charges that otherwise would ravage earnings.
dot-com companies, ego clashes could stymie
plans or financial gains may never cover the				But because of the death sentence the
large premium paid for Time Warner."				Financial Accounting Standards Board has
				levied on pooling, companies must use
Â· "You don't need to own everything to do				straight-purchase accounting after January 1,
what AOL and Time Warner are doing."				2001. Then buyers will have to amortize
				goodwill for no more than 20 years."
Warner-Lambert
				Consolidations and Rollups
Merger mania can make strange bedfellows, let
alone promises unfulfilled. Alliances can				Bill Wade in Industrial Distribution said:
lead to mergers. Warner-Lambert is an example				"The basic premise couldn't be any simpler.
of all the above. This is corporate soap				Take a highly fragmented industry-like
opera at its best.				distribution-facing technological change,
				customer upheaval or chronic financing
Â· June 16, 1999, Warner-Lambert Company				difficulties. Add in a few well-healed
announced that it has signed a letter of				foreign firms or, worse, a couple of
intent with Pfizer Inc. to continue and				previously unknown competitors from outside
expand its highly successful co-promotion of				the business. Since the industry leaders are
the cholesterol-lowering agent Lipitor				probably family-run businesses with limited
(atorvastatin calcium). The companies, which				succession strategies, the next step to
began co-promoting Lipitor in 1997, will				protect profit and continue growth is clear:
continue their collaboration for a total of				consolidate."
ten years. Further, with a goal of expanding
their product collaborations, the companies				A consolidation or rollup, as it's frequently
plan to explore potential Lipitor line				called, generally occurs when an organization
extensions and product combinations and other				or individual with deep pockets sets out to
areas of mutual interest.				buy several small companies in a fragmented
				industry and rein them in under a new or
Â· November 4, 1999, newspapers across				collective pennant. In 1997 the National
America report on "one of the biggest mergers				Association of Wholesale-Distributors
of any kind, ever." The Wall Street Journal				reported that 42 of the 54 industries they
said, "Now, American Home is set to merge				studied had been significantly affected by
with Warner-Lambert Co. in a stock deal that				consolidation. Frequently a professional
is valued at about $72 billion. It stands as				management and buying strength create
the biggest deal in drug-industry history and				economies of scale that allows the
one of on the biggest mergers of any kind,				consolidator to pluck the low hanging fruit
ever." Also reported, "Warner-Lambert held				in the industry. They will invest
talks with Pfizer Inc. at the same time it				significantly in systems to eliminate the
was negotiating with American Home."				duplication of effort and inefficiencies that
				exist within the industry being consolidated.
Â· November 4, 1999, The New York Times
runs a story titled, "Can a Strong-Willed				While some call it smoke and mirrors, many
Chief Share Power in a Merger?" The article				consolidators are yielding outstanding
lead with, "The planned merger between				results. In 1997, at 39 years old, financial
American Home Products and Warner-Lambert				whiz Jonathan Ledecky pulled off a bold deal.
once again raises the question of whether				As reported in CFO magazine, He went to the
John R. Stafford, American Home's famously				public equity markets and raised half a
strong-willed chairman and chief executive,				billion dollars for his company,
is capable of sharing and, perhaps more				Consolidation Capital Corp., in a brazen
important, letting go of power."				initial public offering. Without revenues,
				assets, operating history or identity (name
Â· January 13, 2000, Warner-Lambert Company				or industry), he raised the capital in a
indicated that, as a result of changing				blind pool on the strength of his reputation
events, it is exploring strategic				alone.
alternatives, including meeting with Pfizer,
following Pfizer's recent approach. In that				U.S. Office Products (USOP) is the result of
regard, Warner-Lambert said that its Board of				220 acquisitions. Sharp Pencil was one of six
Directors has authorized management to enter				privately owned office-supply companies that
into discussions with Pfizer to explore a				Ledecky put together. But he didn't stop,
potential business combination. The Company				after two years, and 220 acquisitions later,
stated that, in light of changing				USOP was a member of the Fortune 500, with
circumstances, its Board had concluded that				$3.8 in revenues. "It was crazy," says Donald
there is a reasonable likelihood that				Platt, senior vice president and CFO at USOP.
Pfizer's previously announced conditional				Platt did rely highly on outside resources,
proposal could lead to a transaction,				including a team of lawyers and accountants
reasonably capable of being completed, that				to get the job done (the 220 acquisitions).
is better financially for Warner-Lambert				"We restricted then to well-managed,
shareholders than the proposed merger with				profitable companies. At worst, we would
American Home Products.				still be making money," says Platt.

Lodewijk J.R. de Vink, chairman, president				H. Wayne Huizenga is the owner of the Florida
and chief executive officer of				Marlins baseball team. He is also the king of
Warner-Lambert, stated, "It has always been				consolidators. He pioneered his technique by
the Board's objective to secure the best				rolling-up trash-truck businesses to create
possible transaction for Warner-Lambert				Waste Management Inc., the nation's largest
shareholders and we will now pursue				waste company. He went on to create the
discussions with Pfizer to determine if a				largest video chain, Blockbuster Video. With
combination with them to achieve that goal is				AutoNation, Huizenga, now struggling, is
possible." The Company emphasized that there				attacking the retail automobile industry. In
can be no assurance that any agreement on a				mid-December 1999 AutoNation had 409 retail
transaction with Pfizer, or that any other				franchises but announced the closing of 23 of
transaction, will eventuate.				their used-car superstores.

Â· January 24, 2000, in response to				Michael Riley learned about consolidations
inquiries, Warner-Lambert Company said that				while serving as personal attorney for
it would continue to explore strategic				Huizenga. In July 1999, Riley's company,
alternatives, including discussions with				Atlas Recreational Holdings Inc., paid $14
Pfizer. The Company's unwavering goal is to				million to purchase controlling interest in
provide the greatest value to Warner-Lambert				the only publicly traded RV dealership chain
shareholders. Warner-Lambert officials				in the United States, Holiday RV Superstores
emphasized that there can be no assurance				Inc., in Orlando, Florida. Riley's avowed
that any transaction will be completed and				intention is to grow the company from $74 in
offered no further comment.				annual sales in 1998 to $1 billion by 2003 by
				acquiring other dealerships.
Was American Home Products the bride left at
the altar? The Wall Street Journal didn't				Riley says, "Consolidations really will help.
think so, in fact they called American Home				We can bring advantages to sales and service.
the Runaway Bride in their November article.				We can make a difference in warranty. There
Additionally they listed several companies				is a real value added when you put these
that American Home has them selves left at				companies together."
the altar.
				Same Industry, Different Strategies
Â· Early November 1997, American Home
Products and SmithKline Beecham begin merger				In mid-1997, roll-ups, United Rentals and
talks.				NationsRent were formed. They are in a race,
				but are using different strategies to achieve
Â· January 30, 1999, Talks break off.				their results. After two years of ravenously
				gobbling up companies, United had 482
Â· June 1, 1998, American Home and Monsanto				locations while NationsRent had accumulated
announce agreement to merge.				only 138 stores. NationsRent has been
				developing a nationwide identity with stores
Â· October 13, 1998, American Home and				that look-alike and have the same signage and
Monsanto cancel plans to merge.				layout. United Rentals presence is virtually
				unknown since the stores retain their
Â· November 3, 1999, American Home and				previous appearance.
Warner-Lambert Co. in talks to merge.
				Motivations for Consolidators
Acquisitions
				There are several good reasons why
An acquisition is basically the function of				consolidators attack a particular industry.
one company consuming and digesting another.				The following list provides some of the
The result is that the acquiring company				rational that assist them in their decision
shores up core weaknesses or adds a new				making process. As you look to profit from
capability without giving up control, as				the trend, keep these elements in mind as you
might occur in a merger. Added capabilities,				make your selection on whom to acquire.
rather than synergy is usually the reasoning
behind acquisitions. In this situation, the				Â· Confidence by the players that they can
acquiring company's culture prevails.				capture significant and highly profitable
Frequently one company will acquire another				additional market share by implementing the
for their intellectual property, their				cutting edge management, procurement,
employees or to increase market share. There				distribution and service practices that will
are numerous strategies and reasons why one				give them a competitive edge over smaller
company acquires another, as you will soon				players.
discover.
				Â· Gain national customers through
Guardian Protection Services has been				increased capabilities in delivering the
acquiring alarm companies within its				highest levels of standardized service and
northeast region of operation to supplement				national geographical coverage.
its internal growth. Russ Cersosimo,
president says, "This is just another way for				Â· Larger customers of independent
us to satisfy our appetite for growth. Our				distribution channels are seeking broader
desire is to expand our opportunities in the				geographic coverage and networks of locations
other offices. That is another reason why it				that allow for greater service capabilities,
is attractive for us to look to acquire				and the smaller customers want a high level
companies, to get their commercial base and				of customer service and response.
commercial sales force that is in place in
those offices. We wanted to make sure that we				Â· Customers' desire for more product
can digest the new accounts without putting				sophistication.
strain on our paper flow and the systems we
have in place."				Â· Insurance and financing synergies.

Who does R&D acquisitions well? Electronics				Fragmented Industries Are Ripe for
Business recently answered, "Cisco Systems				Consolidations and Rollups
Inc., San Jose, the networking equipment
company, which boasts many success stories				Some industries that are ready for
among its 40 acquisitions of the past six				consolidations or rollup examples include
years." None of their acquisitions were in				heavy-duty truck repair, office products,
mature markets, rather all were leading edge,				recreational vehicle dealerships, rental
allowing Cisco to broaden its product				stores (equipment, tools and party) and
offering. Cisco hedges its acquisition bets				distribution. Consolidation does not just
through volume. Ammar Hanafi, director of the				happen. It is triggered by shifts in supplier
business development group at Cisco says it				and customer expectations. Consolidation in a
counts on two out of three acquisitions				supplier base or customer pool often alters
succeeding and the remaining third doing just				the economic rational for the structure of an
okay. Acquiring people, intellectual				industry. Functional shifts are accompanied
properties and specialized skills is				by serious margin shifts among channel
important to companies like Cisco. They think				participants.
that even if the acquired technology does not
pan out, they have the engineers. Generally,				Take notice of the speed in which an industry
any fast growing company like Cisco cannot				can experience consolidation. If you are a
hire people fast enough and the acquired				consolidator, pick the low hanging fruit
personnel are a boon to the company's				before another beats you to it. If you are
progress. Retention of acquired employees is				fighting consolidation, take notice of the
at the heart of their acquisition strategy.				state of your industry and make adjustments
"If we're going to lose the people who are				(like strategic alliances) to your business
important to the success of the target				plan if your industry is highly fragmented.
company, we're probably not going to have an
interest," says Cisco controller Dennis				Â· TruckPro, the $150 million sales
Powell.				creation of Haywood and Stephens Investments,
				was sold in May 1998 to AutoZone, the $3
"Cisco doesn't do big acquisitions, the				billion distribution king of do-it-yourself
cultural issues are too huge," Hanafi says.				auto parts.
Cisco buys early stage companies with little
or no revenues. While they often have paid				Â· In June 1998, nine heavy-duty
extremely high prices for the acquisition,				distribution companies with volumes of $6 to
they seem to do better than most with their				$37 million, simultaneously merged and raised
selection. Between 1993 and 1996, Cisco				$46 million from the public for their brand
bought cutting edge LAN switching				new $200 million company, TransCom USA.
technologies for a total of $666 million in
stock. More than half was spent on Grand				Â· Brentwood Associates, a venture capital
Junction Networks Inc., which developed fast				company, during Spring and Summer1998,
Ethernet switchers. At the time of purchase,				created HAD Parts System, Inc. a $145 million
it is estimated that Grand Junction's annual				operation, by acquiring three companies in
revenues were $30 million. "Today, the four				the Southeast.
LAN switching acquisitions account for $5
billion of Cisco's $12 billion in annual				Â· In July 1998, Aurora Capital's QDSP
revenues." "We acquire companies because we				acquired majority interest in nine heavy-duty
believe they will be successful. If we didn't				companies from FleetPride, a $200 million
believe in their success, we would not				parts and service operation.
acquire them," says Powell.
				Stated in Truck Parts & Service, "Here the
Little known West Coast Texas Pacific Group				independent suffers a staggering disadvantage
(TPG) has been acquiring at a feverish pace.				to roll-ups. Consolidators have access to
Their semiconductor and telecom buying spree				large amounts of capital. The independent
includes, GT Com in 1995, AT&T Paradyne (from				businessperson, however, must primarily
Lucent Technologies Inc.) in 1996, Zilog Inc.				finance his growth by earnings retains from
in 1997, Landis & Gyr Communications SA in				current operations. New high efficiency
1998, ON Semiconductor (from Motorola Inc.),				service bays, significant and growing
Zhone Technologies Inc., and Advanced TelCom				training expenses, data processing and
Group Inc. in 1999.				communications technology all clamor for
				increased working capital. The large players'
TPG banks heavily on intellectual capital.				acquisition cost advantage eventually will
Many believe that by being part of TPG, their				win him all the mega-fleet business and the
single biggest advantage is access to broad				vast majority of business from mid-sized
pool of talented and well-connected people.				fleets.
CEOs can take advantage of TPG's contacts in
other industries around the world. "TPG has				Supplementing his parts acquisition cost
this ability to build a virtual advisory				advantage, the consolidator will be able to
board...that they don't even have to pay				lower many overhead costs through centralized
for," says Armando Geday, president and CEO				management and volume discounts...Combined
of GlobeSpan Inc.				savings in parts acquisition cost and
				overhead reduction should easily exceed 4% of
Lucent Technologies, Inc. has also been				sales."
rampaging through the same market as Cisco.
Lucent's 1999 (January to August)				Some of the indicators that an industry (any
acquisitions as listed in CFO magazine				industry) is poised for consolidation are
include:				listed below. If you notice your industry has
				similar issues, it is just a matter of time.
Â· Kenan Systems for $1 billion				Plan now for what is coming. Where do you
				want to be when the train arrives?
Â· Ascend Communications for $24 billion
				Â· A high degree of fragmentation with
Â· Sybarus for $37 million				numerous smaller companies and few, if any,
				dominating players.
Â· Enable Semiconductor for $50 million
				Â· A large industry that is stable and
Â· Mosaix for $145 million				growing.

Â· Zetax Tecnologia, $ N/A				Â· Multiple benefits for economies of
				scale.
Â· Batik Equipamentos, $ N/A
				Â· Synergies that can be achieved by
Â· Nexabit Networks for $900 million				consolidating companies.

Â· CCOM, Edisin, $ N/A				Â· Infrequent use of advanced management
				information systems.
Â· SpecTran for $99 million
				Â· Limited access to public capital markets
Â· International Network Services for $3.7				and somewhat inefficient capital structures
billion.				among companies.

An advantage that Lucent has over its				Â· Lack of opportunities, historically, for
competitors is access to its 25,000-employee				owners to liquidate their businesses if they
Bell Labs idea factory. As such, they are				wish to leave the industry.
more likely to purchase technology rather
than R&D. Still, Lucent continually reviews				Reasons for Business Owners Selling to
the comparative advantages of technology and				Consolidators
R&D in relationship to its own projects in
reviewing acquisition possibilities. Lucent				The reasons for a business owner to sell his
executive vice president and CFO Donald				or her business are as varied as there are
Peterson says, "In every space in which we				people. Usually it is not one reason but
have acquired, we have had simultaneous				several combined reasons that influence a
research projects inside. It makes us				seller's decision. The following list
knowledgeable, and lets us have a				provides you with the general areas that
build-versus-buy option."				might drive a selling decision:

Lucent wants their units as a hole to do well				Â· First generation owner, without heirs,
and if acquisition helps that cause, they				nearing retirement.
acquire. Peterson also says, "We view
acquisition as a tool among many that our				Â· Lack of capital to make necessary
business units can use to advance their				technological and capital improvements to
business plans. We evaluate acquisitions one				compete, within an industry, and with new
by one, in the context of the business				competitors.
strategy of the unit."
				Â· Flat growth rate in industry.
Tyco International Ltd. is a diversified
global manufacturer and supplier of				Â· Better profitability as part of a larger
industrial products and systems with				organization.
leadership positions in each of its four
business segments: Disposable and Specialty				Â· Centralized buying.

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Everything about the steel around us

Mergers & Acquisitions Can Result from Strategic Alliances