Question

Using Corporate strategy for alliances, explain with suitable frameworks related to Horizontal or vertical integration of below case:

During the acquisition of Instagram by Facebook

• What are the potential synergies, if any?
• What’s the market’s estimate of total synergies?
• How much of this is the acquirer able to capture?
• Suppose that you were a member of the acquirer’s Board of Directors, what questions would you have asked during the Board’s evaluation of the acquisition before voting for approval (or not)?
• In your opinion, is this a good deal for the acquirer?
• In your opinion, is this a good deal for the target?

After the acquisition of Instagram by Facebook

• Given the information available at the time of the acquisition, how would you have integrated the companies?
• How did the companies plan to integrate  upon announcement of acquisition?
• How did they integrate?

Answer 1

During the acquisition of Instagram by Facebook:

• What are the potential synergies, if any?

The synergies that are created through alliances are:

• 1. Competitive advantage as Facebook got the advantage over its competitor spaecially google which also tried to settle the deal.
  2. Addition of customer base. Instagram customer are added to facebook customers.
  3. Better technology.
  4. Better access to resources.
  5. Capture market
  6. Achieve economies of scale
  7. Better human capital and employees.
• What’s the market’s estimate of total synergies?

It is around 3.0 billion.

• How much of this is the acquirer able to capture?

Facebook acquired Instagram when it was 1 year old with only 11 members. Its is able to capture and in fact more than that i.e. 3.7 billion

• Suppose that you were a member of the acquirer’s Board of Directors, what questions would you have asked during the Board’s evaluation of the acquisition before voting for approval (or not)?

What is the future course of action for this acquisition and how can we make it better and bigger?

• In your opinion, is this a good deal for the acquirer?

Since Instagram is small co. and does not have much valuation so acquiring at this stage would be better option. Also, to align with the technological challenge and customer need in future, it is good deal.

• In your opinion, is this a good deal for the target?

Yes, the target set was less and does can be achieved.

After the acquisition of Instagram by Facebook

• Given the information available at the time of the acquisition, how would you have integrated the companies?

Facebook has already acquired many companies and thus therefore, to integrate these synergies is must. Facebook can integrate with Instagram through its features, customer base, new upgradation, etc.

• How did the companies plan to integrate upon announcement of acquisition?

They converted it into messenger platform.

• How did they integrate?

Although Instagram will act as a separate entity, they made plan for integration through messaging app and try to convince people to login through their Facebook id.