Question

1. You are on the executive board of an information technology firm that provides trafficking software to the trucking industry. One of the firm’s managers feels the company should grow and has suggested expanding by creating trafficking software for rail shipments or by offering trucking trafficking services online. You know your firm is in a position to expand but are not sure about the best way to do so.

Should the firm consider a merger with or an acquisition of a firm that offers the suggested services, or should it develop them internally? List the advantages and disadvantages of each strategic option. Based on your finding and other information, assume that he firm decides to obtain trafficking software for rail shipments through an acquisition of an existing firm. Predict some general problems your firm might encounter in an acquisition and how they might be resolved.

Answer 1

Ans

The advantages of M&A/acquisition are that:

1. the recommended product or service is immediately available

2. the service and maintenance of the acquired software is readily available..

The disadvantages of M&A/acquisition are:

1) The product may not meet all the criteria that is sought or it may have quality issues that were not discovered earlier

2) The amalgamation of the new team members with the current team might be difficult due to cultural issues.

The advantages of developing inhouse are:

1) assurance of the quality of the product and team

2) Low cost of development as compared to acquisition

The disadvantages of developing in-house are:

i) Significant time lost in developing product and the team for maintaining it.

General problems in acquisition are:

a) cultural issues as both companies have different set of cultures

b) Layoffs to streamline operations and bring synergies

c) Expectation of synergies which d not materialize