Technologists prove that there’s no need for management consultants and bankers anymore. Instant merger of Yahoo and Google simply through some software coding and creativity (the link works too). Check out YaGoohoo!gle!
2 Replies to “YaGoohoo!gle Proves There’s No Need for M&A Anymore”
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Isn’t it also true that most M&A activity destroys value for shareholder? So the rumored merger of Yahoo and Google (which is creating a lot of buzz on the Net) will definitely destroy a great company (Google) by the folks at Yahoo who do lots of interesting things but are good at nothing.
My original post was a bit tongue in cheek, but you are right in pointing out that M&A is complicated matter.
In the attached link, I reference some past M&A studies done in the consulting industry. Some of these studies are also “referred to” in academia so they carry a good amount of weight.
http://steveshu.typepad.com/steve_shus_weblog/management_consulting/index.html
Roughly speaking, the upshot is that for M&A to be successful, the acquiring firm needs to pay a premium for the company that does not exceed the net cash flows generated from increases in revenue plus reductions in cost for the merged company. Shareholder value for the acquirer is created when the price paid for the acquisition target is less than current market value plus the net cash flow benefits.
Many companies overestimate these “synergies”, and thus, pay too much (especially in the case of bidding wars).
As for whether a contemplate Yahoo and Google deal would generate value for both sets of shareholders – it’s hard for me to say as I’ve not analyzed the financial statements and operations of these firms in great detail. That said, if I had to give my off-the-cuff, I would expect that Yahoo and Google would together own as very substantial size of the search market (and the revenues). When one considers the after-tax cash flows that near-monopolies can create (e.g., Microsoft, Intel) by sheer power of being a scarce resource, this is another factor to consider (and probably not reflected in the studies I indicated).