Does the merger make sense from a strategic fit perspective? Food delivery grew rapidly in the U.S. over the past five years

 

To Merge or Not to Merge…?

Mergers or acquisitions only make sense when the combined entities create greater value together than they can separately.

Locate and provide a link to a recent news story from The Wall Street Journal or other reputable news source about a merger or acquisition that has been announced between two publicly-traded companies in the last year. To avoid repetition, please find an M&A article that other students have not discussed.

  • In your own words (not simply copied from the article), describe how the combined entities were expected to create greater value together than separately (e.g., how they were going to increase revenue, lower costs, and/or better manage risks). Be descriptive and thorough in explaining these potential synergies. To support your response, include specific references to M&A strategies discussed in Chapter 6 of The CFO Guidebook.
  • Applying your business acumen and emerging CFO skill base, provide your assessment and supporting rationale about whether this merger makes sense from three perspectives: 
    • Does the merger make sense from a strategic fit perspective?
    • Does the valuation of the deal seem reasonable?
    • Identify the biggest risk(s) you think the acquirer will confront in extracting the synergies post-transaction.

Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates' initial posts by Sunday, midnight of your time zone.​

ist person to response

 Deborah Ann Perry RE: Week 4 DiscussionCOLLAPSE

Hello JP and Classmates,

Mergers or acquisitions only make sense when the combined entities create greater value together than they can separately.

Locate and provide a link to a recent news story from The Wall Street Journal or other reputable news sources about a merger or acquisition that has been announced between two publicly-traded companies in the last year. To avoid repetition, please find an M&A article that other students have not discussed.

  • In your own words (not simply copied from the article), describe how the combined entities were expected to create greater value together than separately (e.g., how they were going to increase revenue, lower costs, and/or better manage risks). Be descriptive and thorough in explaining these potential synergies. To support your response, include specific references to M&A strategies discussed in Chapter 6 of The CFO Guidebook.

This article is about Food- Delivery Firms Put Mergers, IPOs on the menu.

( wsj.com/articles/food-delivery-firm-put-mergers-on-the-menu-11582030802). 

These companies operate in entirely different segments to gain market share to improve operational efficiencies. ( week: 4 Weekly materials). 

Grubhub is one of the biggest U.S, public companies that focus on food delivery, lately, their profit has shrunk shares and dropped 39% in the past year. DoorDash, Postmates, and Uber Technologies Inc. In the past month, they have had discussions about merging in various combinations and considering a public listing to raise more money from private investors. Restaurant inc and food delivery need to come together to consolidate. The head chief of Uber talks about he will pull out from the market if his company is not number one or number two in the marketplace. ( wsj.com/articles/food-delivery-firm-put-mergers-on-the-menu-11582030802). 

  • Applying your business acumen and emerging CFO skill base, provide your assessment and supporting rationale about whether this merger makes sense from three perspectives:

      Acquisition Strategies:

Full-service strategy: An acquirer may have a relatively limited line of products or services, and wants to reposition itself to be a full-service provider. This can fill in the holes in the acquirer's full-service strategy. This approach is usually a combination of products with support services and can be extended into multiple geographic regions. ( Steven M. Bragg, CPA).

  • Does the merger make sense from a strategic fit perspective?

Food delivery grew rapidly in the U.S. over the past five years, thanks to a flood of venture capital. Companies with food-delivery operations raised nearly $16 billion between 2016 and last year, according to data firm PitchBook.

Delivery companies used the cash to expand across the U.S. and invade each other’s strongholds. DoorDash, Uber Eats, Postmates, and Grubhub all say that they can deliver to about three-quarters of the U.S. population. (https://www.wsj.com/articles/food-delivery-firms-put-mergers-ipos-on-the-menu-11582030802).

  • Does the valuation of the deal seem reasonable?

This month the company started laying off its employee drivers, issuing more than 3,000 notices to workers in Louisiana, Texas, and Alabama, according to state labor department records.

A Waitr spokesman said the company is converting its employee drivers to contractual workers. Yes, this deal seem reasonable

  • Identify the biggest risk(s) you think the acquirer will confront in extracting the synergies post-transaction.

Uber's IPO filing dishes on frenemies, synergies, and #DeleteUber.

This could hit a valuation as high as $91 billion.

Uber's price range of $44 to $ 50 a share. A private company, Uber raised $ 14.9 billion, giving it an estimated valuation of $ 76 billion. 

Deborah

Ref:

Steven M. Bragg, CPA. The CFO Guidebook. Chapter 6.

(https://www.wsj.com/articles/food-delivery-firms-put-mergers-ipos-on-the-menu-11582030802.

https://www.cnet.com/tech/mobile/ubers-s-1-ipo-filing-dishes-on-frenemies-synergies-and-deleteuber/.

https://www.wsj.com/articles/food-delivery-firms-put-mergers-ipos-on-the-menu-11582030802.

2nd person to respond to

 
1 day agoJamie Valinsky Cisco Agrees to New Deal to Buy Acacia for $115 a ShareCOLLAPSE

Good Afternoon Professor and Classmates,

Article: Cisco Agrees to New Deal to Buy Acacia for $115 a Share

Author: Sarah E. Needleman

Date: January 14, 2021

For a little bit of context before we get into the article, one of Cisco's largest segments for revenue generation comes from a market called Service Providers (SP's).  We've all heard of them, Verizon, T-Mobile, AT&T, Bell Canada, Rogers, Telus, Deutsche Telecom, British Telecom…. you get the point.  These SP's invest billions of dollars in infrastructure to deliver services such as the Internet, MPLS, Cellular, First Responder, and the like to consumers and enterprises across the world.  The majority of that infrastructure in today's technology world is built using a technology known as Fiber Optics, you may even have such a connection in your home.

The purpose of this acquisition was for Cisco to absorb a company, Acacia, that specifically designs and manufactures fiber optic components that are essential for the operation of Large Cisco Routers and their corresponding Line Cards. These Small Form Pluggable (SFP's) as they are known, are mandatory for terminating fiber on either end of the connection, and thus SP's around the world consume hundreds of thousands of them per year.  As the article states, "The two companies share a vision for the future of routing and pluggable optics, which are more cost-efficient than traditional chassis-based systems… together we will ignite our strategy to transform the optical world as we know it" (Needleman, 1).  This represents a Market Window Strategy, Sales Growth Strategy, and Synergy Strategy all in the same acquisition.

A Market Window Strategy represents an opportunity for an acquirer to purchase "another company that is already positioned to take advantage of the window with the correct products, distribution channels, facilities" (Bragg, 2).  By purchasing a company such as Acacia, Cisco is well positioned to take advantage of this market segment by coupling these optics with its large service provider chassis sales including the ability to add on Umbrella subscriptions and services that generate healthy renewals revenue – this is the Sales Growth Strategy coming into effect.  Lastly, the Synergy Strategy aka the "bolt-on strategy" (2).  By combining forces, Cisco and Acacia can not only streamline R&D and Engineering between these two companies, but it can also seek to operate at a larger economy of scale and strip inefficiencies out of the business. From a strategic point of view, this is a win for Cisco and Acacia on many levels!

The acquisition price of $4.5bil USD was based on fiscal year 2020 revenues of $583.5mil USD and non-GAAP income of $127.4mil USD, which represents a multiplier of just over 7.5 times on revenue (Acacia, 3).  This is a profitable, functioning technology company that can transform Cisco's presence in the Optical Pluggable space and provide much-needed boosts into next-generation networks such as 5G. Upside aside, this represents a fair valuation at a fair multiplier in the Networking Infrastructure world for a company whose main focus is hardware.

From a risk perspective, the largest risk I can identify is a failure to properly integrate and build out a platform offering that aligns with customers on both strategic functionality and price – "reporting a larger amount of total revenue does not generate value, it may destroy value" (2).  While Acacia on its own was successful in generating over $500mil USD in revenue without the additional coverage of its Cisco sales counterparts nor its cisco R&D/Engineering Counterparts, it is imperative from an integration standpoint the strategy needs to be well aligned, and well executed, else this acquisition may end up convoluting an offering as opposed to strengthening it.

Best,

Jamie Valinsky

References:

1. Sarah E. Needleman. January 14, 2021. Cisco Agrees to New Deal to Buy Acacia for $115 a Share.  Wallstreet Journal. Retrieved from: https://www.wsj.com/articles/cisco-agrees-to-new-deal-to-buy-acacia-for-115-a-share-11610636090

2. Steven M. Bragg, CPA. 2020.  The CFO Guidebook, Chapter 6. Accounting Tools.

3. Acacia Communications, Inc. January 11, 2021. Acacia Communications Announces Preliminary Fourth Quarter and Full Year 2020 Results.  

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