Wednesday, May 14, 2003

The Mergers and acquistions race: buying brands From the point of view of the oligopolies, the goal is always to reduce risks and stay afloat - in order to maximize ROI. The aim, wherever and whenever, is to use a centralized but locally savvy decision-making process to eliminate as many unpredictable variables as possible. If one of your brands can help out another, it would be foolish not to make use of that help, within the bounds of decency or public clamor, of course. The same attitude informs every decision and the same financial criteria are used to make decisions, despite the apparent diversity of the industry sector. Over the past years, mergers and acquisitions, always a major part of the business world has gone into overtime mode. We've seen piddling companies like Viacom and Comcast come from nowhere and achieve major success by gobbling up others. We've seen already strong companies like Coca Cola, Bertelsmann, and Disney extend their reach. And we've seen almost every familiar brand on the shelf become part of a major conglomerate, if only in self-defense. For example, few know that Haagen Dasz is owned by Nestle, that both Playtex bras and Ball Park hot dogs are owned by Sara Lee, that Ben & Jerry's and Birdseye are owned by Unilever, that TV Guide is owned by the News Company (Fox), or that Miramax Films is a division of Disney. Most of these represented proud independent companies a decade ago, but now they form parts of interlocking oligopolies. The pace of acquisition and merger continues in the new century, slowed only by the scruples of American and European free trade groups. This slow-down is strongest in Europe where recent mergers between GE and Honeywell on one hand, and between music companies EMI and BMG on the other, have been called off recently due to regulatory objections. But even in Europe such antitrust forces are getting weaker. In the US, they are fading fast. Why consolidate rather than expand on your own? It is far easier and cheaper to acquire existing brand and outlets than to build new units from scratch. After all, traditional brands have already captured the loyalty -- and mind space -- of consumers in a target market. Starting anew involves conquering mind space from scratch -- a much riskier challenge than maintaining and expanding mind space against the onslaught of competitors. Mergers and acquisitions minimize the risk involved in entering new markets. They can also lower operating costs by consolidating the costs of advertising, procurement, distribution, and corporate overhead. Mergers and acquitions for many businesses are defensive, an attempt to reduce the risk of market disruption.  Some others are just empire-building, of course, or sops to a CEO's vanity. But for every company, the hope is that by buying an already established brand or market base, the risk involved in creating a new initiative can be reduced. 5:51:26 PM

comment []