In earlier articles, we understand that many M&A exercises were unsuccessful.

Rather than re-invent the wheel, it’s good to learn certain lessons from successful M&A exercises particularly from Cisco which is a Master Integrator which not only is adept at acquiring companies and but is as adept at quickly and effectively integrating them.

Acquiring companies by paying hefty prices are easy matters but integrating to get the 1+1=3 synergies are extremely difficult hence the need to made careful selection of the right candidate.

Just in case, we do not know who is Cisco System- it’s the world’s leading supplier of computer networking systems. From 1993 to 2000, it has embarked on inorganic growth vide acquisition by acquiring 51 companies. Cisco targets companies with industry leading technology that will extend Cisco product line to allow it to be a leader in the networking world without having to develop all of its technology internally.

Basically, Cisco has certain rules of thumb to be used to guide the acquisition strategy:

1. To consider the acquisitions if the management of the target company and Cisco share a common vision pertaining to where the industry is going and the role that each company wants to play in the industry going forward;

2. In a technology company what Cisco is acquiring are the employees so it would ensure that there are so called “short term wins” for the employees of the acquired company- the employees must see a future for Cisco; be comfortable with the company’s culture and believes providing an opportunity to continue the work they were doing prior to the acquisition;

3. Compatibility of acquisition target’s long term strategy and how it fits into Cisco’s long term strategy. There must be long-term wins for all four of a company’s constituencies-its shareholders, employees, customers and business partners;

4. There should be cultural and chemistry similarities of the two companies to make the mergers successful;

5. when targeting a large acquisition, it’s important to consider the geographical proximity to Cisco’s current operations. The lack of geographical proximity will eliminate many of the efficiencies of a combined entity.

Interestingly, Cisco would not proceed or act very cautiously if a target company does not meet all five test, and if it meets three of the five, Cisco will not move forward.

Cisco’s ideal acquisition target is a small start-up company that has leading technology in development that will be ready for market in 6 to 12 months. It is basically buying the engineering talent and the developing product. Then Cisco in turn will use its manufacturing capability and financial strength behind the new product to quickly bring it to market through its extensive distribution channels.

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