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Background of Organization

Discuss About The Development Of A Synergy Tracking Merger?

Facebook is known to b e as one of the top most social media companies which has brought the world closer. It was founded by Mark Zuckerberg in 2004. It initially was created for college students who used to attend special schools but within just 10 months, the number of joiners went up to 1 million users. In 2017, the number reached up to 2 Billion users (Toth, 2018). Mark’s invention was and is growing day by day. With this growth happening, he went on to acquire 66 big and small companies. Out of them, the largest acquisition done by Facebook is WhatsApp. FB purchased it for $19 Billion in 2015. There were other fascinating acquisitions too done by FB. Like Instagram and Virtual Reality. If the total amount spent on all the acquisitions done by Facebook is taken, the number is so magnificent that it cannot be seen in any other acquisitions. The number comes down to $22,651,000,000 (zook, 2015). Expanding the business is like just a step ahead after any idea is implemented. Zuckerberg back then realized that mobile was the future. Hence, Facebook bought Beluga which was a mobile messaging company that developed group messaging. Today, Facebook is the second most popular mobile messaging app in world (Low, 2016). WhatsApp was one of the popular messaging app for smart phones. After buying WhatsApp, Facebook only grew even more and more. This was one of the most important acquisitions by Facebook (Anazodo, 2016).

Facebook was founded July, 2004 by Mark Zuckerberg. The company focuses on creating the products which helps in connecting with people through computers, mobile phones and apps (Biography, 2018). Also, it is focused to let people know about the happenings of the world through it. People can easily share their ideas, pictures and videos too on the same platform. Products that the company provides are Facebook, Instagram, Messenger and WhatsApp. It also engages itself in selling advertising placements to marketers. These advertisements let the people who are marketing them or their product reach to the people based on demographic trends. Marketers purchase the packages to market their product (reuters, 2018). The company headquarters are in California and the numbers of employees in the company are 23,165 until 30th September (newsroom.fb, 2018). The daily active members are 1.37 Billion and monthly active members are 2.07 Billion as of 30th September. Mark Zuckerberg was 23 years old when he was studying Psychology from Harvard University. At this age, he earlier had already developed many apps as he was a keen computer programmer.  In 2004, February, he created Facebook for college students. Within a day, over 1200 students signed up to the website and in a month, there were half of the college students who were a part of Facebook. Later other universities like Boston etc. also promptly responded to it and by 2005, it had 1 Million subscribers. In 2006, Google etc. companies wanted to buy Facebook from Mark but he refused to sell it after all (theguardian, 2018). After a year, the subscriber number came up to 30 million and some of the very famous people also became a part of Facebook. Today, it has more than 2 Billion users and it has acquired over 66 companies till now. The major companies are Instagram which Facebook bought in 2012 for $1 Billion. Later in 2015, it acquired WhatsApp too for $19 Billion, though WhatsApp could work independently as usual (Olsen, 2014). The idea for Zuckerberg behind buying WhatsApp was not to earn money but to see the growth in terms of users and connectivity. WhatsApp is ad free so it is loved by all the users. Also, it charges $1 per year with the users after giving it free for the first year of subscription. This app was founded by two former yahoo executives Brian Acton and Jan Koum.  Facebook agreed to a deal of $19 Billion with the addition of $3.6 Billion more so that the WhatsApp employees should stay onboard with Facebook.

Mergers and Acquisitions also known as M&A, have become so common these days as the corporate world is growing. If any merger or acquisition talks place in the market, it is very likely that everyone would be having the knowledge of the incident through news, articles, papers, TV or any social media. The term means that the value of the two companies’ combined is more than those two companies when separated. It is basically the collaboration of the two. Sectors where mergers and acquisitions tales place are finance, telecommunication, IT, Pharmaceuticals, chemicals and oil etc (Xiaofang, 2014).  

Merger happens when two companies join each other to make one single company but with a new name. Usually a merger takes place between two companies which are same in size or have equal stature. It is then called as a “Merger of Equals”. But sometimes, merger also happens when two companies differ in size (compcomm, 2015).

Acquisition happens when one company acquires or buys the other company and that company name is completely lost after that.  The company which has acquired the other one gets to keep the same name. The company which is bought is usually smaller than the one who bought it (Schade, 2014).

Mergers and Acquisitions are stated to be the strategic alliance and rational financial which are made in interest of the organization and the stakeholders of the company.  Maximizing the profit and financials value is the main objective behind this process (Sue Cartwright, 2014).

Mergers and Acquisitions take place because of many reasons. Some of them are:

When companies look forward to enter into new market where they are sure of excelling, they merge or acquire with the companies that have already made their mark in that particular sector. For entering into new market, companies always will choose the other company from which it can learn.

To enhance the shareholder value too, sometimes, the company’s merger. This is done by:

  1. The reduction in cost which is achieved by operating, trimming the workforce and combining the departments.
  2. By absorbing the market share and major competitor, the revenue is increased.
  3. Cross selling of services and products.
  4. Saving achieved in tax when a company which is in profit merges with the loser company.
  5. To boost investor’s confidence and stabilize earnings, diversification helps.
  • When the management of any company realizes the need to transform its corporate identity, mergers and acquisitions takes place.
  • It is also used for risk spreading
  • When synergies signify that the greater is whole than parts, acquisitions happen to achieve horizontal and vertical operational synergies.
  • To dominate the market and reaching on t o the economy scale, mergers and acquisitions takes place (Pineda, 2016).
  • By buying out the suppliers after the merger or acquisition, the cost can be reduced on the whole.
  • Sometimes, managers also have shares in the company. And if the company acquires, managers are also at growth as they will get the shares of the acquired or Merged Company as well(Ray, 2015).
  • Strategic Rationale: Strategic rationale is used when the strategic objectives are to be achieved. Acquisitions and mergers are usually not central to achieve strategic objectives and there are other options available. To secure control of the capacity is a good example of merger.
  • Speculative Rationale: This type of rationale takes place when the company which is acquired is used as a commodity. Any company would acquire or buy the other company when it is a potential target and it can be proved beneficial for the company which bought it. The only risk in this type of acquisition is that the acquirer company can do anything with the company it acquired. It can either sell it or split it in parts. This rationale is very vulnerable to the environment changes.
  • Failure of Management Rationale: If the management side has failed badly, mergers and acquisitions are the only way to save it. Wrongfully aligned strategies or conditions of the market can significantly change while implementing timescale. Results of that will be that the initial strategy becomes misaligned.
  • Political Rationale: Impact of politics is everywhere now days. It is also becoming important with respect to mergers and acquisitions. The mergers and acquisitions which happen due to politics usually take place on Governmental levels.
  • Redefining Business rationale: Redefining of business is sometimes done with the help of mergers and acquisitions. When any organization’s growth stops or the mission and the goals become stale, for example a technical change, mergers and acquisitions come to rescue. The organizations will not be able to completely change the technology due to the investments so company acquires for its business to redefine (Ayesha Alam, 2014).

When Facebook wanted to acquire WhatsApp, Google was also having an eye to acquire it. After Facebook’s two weeks negotiation process, Facebook won over WhatsApp for $19 Billion. It is also believed that WhatsApp was offered more money to take the messaging app out of the Facebook (NEWMAN, 2014) .

There are a few strategies or rules that Zuckerberg followed for successful acquisitions. They are:

Building Relationships: Mark Zuckerberg usually build relationships first with the company he wants to acquire. He thought for a long time about the companies he wanted to acquire and then made friendships or build a good and a positive relation with the owners of the companies he wanted to acquire. He had maintained friendships with WhatsApp owners or Instagram owners for years before he went on to acquire them. It reduces the competitiveness from in between the owners and the acquisition can go smoothly without any rivalry or fights.

Merger

Shared Vision: Zuckerberg has acquired many companies by pitching a collaborative vision for both the companies. The most significant thing was to align a shared vision on which both the acquirer company and the acquiring company work together. It is always better to work collaboratively rather than separately.

Scare Tactics: Sometimes, scaring the small scale enterprises is also helpful. Small start ups are easily afraid if they are made to imagine the difficulty they might see in running their business. Though this was last in Zuckerberg’s mind, this technique is also valuable according to him.

Fast Movement in Buying: Sometimes, while making the deals, the buying companies do not have much time to think over and over. Other big companies also do have a keen eye on the same companies. Hence, one should just take the decision for the deal and break the rules(Heath, 2017).

The golden rules that Cameron and Green suggested are the key rules which are to be applied while any company either go for mergers or acquisitions. They are:

Constantly Communicate: Companies which are interested in mergers and acquisitions generally do not give emphasis on the employees or the culture etc. They just think about the necessary details that are to be given importance in the process. The top leaders should not just simply see the facts and figures; instead they should build relationships and establish the trust for a future joint venture. In Facebook’s acquisition too, Mark Zuckerberg had maintained the relationships with the companies well before he got ahead and propose the deal.  He had 2-4 years of friendly relationships with those companies. With the help of communication, one can very easily share about the vision that the acquiring company has in mind and the acquisition can take place in a very peaceful and healthy way.

Get the Right Structure: The Company which is being acquired has to obviously match up to the structure of the company that is going to acquire it. In almost all the companies, there is already a structure maintained. After the merger or acquisition, the acquired company will have to match up to the new structure. The leaders have to make sure about the new structure, understand the facts and match up. This work should start as early as possible as it takes a lot of time in implementing it. It should start before the deal closes. A few companies use integration team to support this kind of planning. It depends on the type of merger or acquisitions if the integration is required for the whole company and the stakeholders or only for the higher leaders. Not to mention that this type of alignment was not done by Facebook. Facebook wanted all the companies to work as they were working before.

Acquisition

Tackle Culture Issues: Two different cultures are not very easy to merge. While mergers and acquisitions take place, the culture issues are very often seen in the companies. For Example, some companies are very strict in the cost cutting etc. but others are not. If these two types will be merged, one will have to match up to other. Changing that completely is very difficult and may take too long to be implemented. The leaders while the process of acquisition or merger should meet the team and explain the process. Also changes in the structure or culture should also be shared. Setting up the expectation is easy if done on the right time. When Facebook acquired WhatsApp, Mark wanted more people to communicate with each other and work together. Cultural differences in this case (Facebook acquiring WhatsApp) might not have existed as WhatsApp still works independently even after being acquired by Facebook. However, the growth options or the visions are shared.

Keeping Customers on Board: Customers are very important people in terms of business. Every merger and acquisition looks forward to new heights of business. Thinking about the customers first would make the organization reach their goal. Facebook made sure that their users should stay satisfied with the product. Be it Facebook or WhatsApp. The first thought that Zuckerberg has was to keep its customers satisfied and grow in number.

Use Clear Process: While a merger or acquisition takes place, there are a lot of things that needs to be taken care of. There are things that are to be done process by process. It takes phases to complete the tasks to create a smooth merger and acquisition. Mark Zuckerberg had clearly thought of acquiring WhatsApp or any other company since years. He had a long thought about the process and that is why the acquisitions were done successfully and smoothly(Green, 2017).    

If I am to decide or create the rules for Mergers and Acquisitions, then these will be the rules.

Pros and Cons thinking: While the company thinks about the gain that it is going to have with the merger or the acquisition, the cons should also be thought of and mitigate them prior to the process. The worst situations are also to be given a thought so that the risks do not take place.

Involve the Stakeholders: The employees of the company are a very important part of the company as they are the people behind every work and every success that the company gains. Hence, they should be a part of decision making too when the company is thinking of making a merger or acquisition. Their ideas can also be valuable for the company.

Customers First: A customer should be on the priority list for any organization who is thinking of growing in the market. Customer should never feel cheated and then only they will trust the company and stay by them always.

Ethics: A company should never do anything unethical as it will not be good for itself as well as the people who used its products. Being unethical is the way to downfall which a company never desires for(Lavinson, 2018).

Conclusion

Mergers and acquisitions are in trend these days. In the growing corporate world, organizations look forward to be on top. Mergers and acquisitions are a good method to be on top as it helps the organization to take the good decisions for itself and its employees. While merger helps the company in many factors like cost reduction, new culture etc., acquisitions helps the acquired companies to not wither. Rather it can stay in market and grow itself by handing over the responsibility to the strong one. Facebook is one organization which has acquired many companies in the past few years and followed some of the good guidelines so that its acquisitions were very smooth and friendly. Rules of mergers and acquisitions are discussed here as well as Cameron and Green’s guidelines are also compared with the guidelines which Facebook followed. Overall, mergers and acquisitions can prove to be good for the growing companies as it can make them stronger in the market.

References

Anazodo, T. (2016, April 30). iafrikan. Retrieved January 27, 2018, from iafrikan.com: https://www.iafrikan.com/2016/04/30/why-this-is-probably-the-most-important-acquisition-for-facebook/

Ayesha Alam, S. K. (2014). STRATEGIC MANAGEMENT: MANAGING MERGERS. International Journal of BRIC Business Research .

Biography. (2018). Retrieved January 27, 2018, from Biagraphy.com: https://www.biography.com/people/mark-zuckerberg-507402

compcomm. (2015, July 27). Retrieved January 27, 2018, from compcomm.hk: https://www.compcomm.hk/en/legislation_guidance/guidance/merger_rule/files/Guideline_The_Merger_Rule_Eng.pdf

Green, E. C. (2017). Bms. Retrieved January 27, 2018, from BMS.lk: https://www.bms.lk/download/GDM_Tutorials/e-books/Making_Sense_of_Change_Management.pdf

Heath, A. (2017, January 19). businessinsider. Retrieved January 25, 2018, from businessinsider.in: https://www.businessinsider.in/mark-zuckerberg-explains-facebooks-secret-for-acquiring-companies/articleshow/56656388.cms

Lavinson, J. (2018). Acc. Retrieved January 27, 2018, from Acc.com: https://www.acc.com/legalresources/publications/topten/ttrfmaas.cfm

Low, A. (2016, May 25). Cnet. Retrieved January 27, 2018, from Cnet.com: https://www.cnet.com/news/whatsapp-is-the-worlds-most-popular-messaging-app-on-android-says-report/

NEWMAN, J. (2014, February 20). time. Retrieved January 27, 2018, from time.com: https://time.com/8806/facebooks-whatsapp-acquisition-explained/

newsroom.fb. (2018). Retrieved January 24, 2018, from newsroom.fb.com: https://newsroom.fb.com/company-info/

Olsen, P. (2014, October 6). Forbes. Retrieved January 27, 2018, from Forbes.com: https://www.forbes.com/sites/parmyolson/2014/10/06/facebook-closes-19-billion-whatsapp-deal/#32bb909b5c66

Pineda, M. E. (2016, February 3). versiondaily. Retrieved January 25, 2018, from versiondaily.com: https://www.versiondaily.com/reasons-for-mergers-and-acquisitions-case-studies/

Ray, D. E. (2015, March 4). cio. Retrieved January 27, 2018, from cio.com: https://www.cio.com/article/2892329/mergers-acquisitions/reasons-mergers-and-acquisitions-happen.html

reuters. (2018). Retrieved January 24, 2018, from reuters.com: https://in.reuters.com/finance/stocks/company-profile/FB.O

Schade, V. (2014). Merger and Acquisition Definition. In Successful Management of Mergers & Acquisitions: Development of a Synergy Tracking Tool for the Post Merger Integration (p. 4). Anchor Academic Publishing.

Sue Cartwright, C. L. (2014). Merger Motives. In Mergers and Acquisitions: The Human Factor (pp. 18-19). Butterworth-Heinemann.

theguardian. (2018). Retrieved January 2018, 2018, from theguardian.com: https://www.theguardian.com/technology/2007/jul/25/media.newmedia

Toth, S. (2018, January 4). techwyse. Retrieved January 24, 2018, from techwyse.com: https://www.techwyse.com/blog/infographics/facebook-acquisitions-the-complete-list-infographic/

Xiaofang, C. (2014). The Impact of Mergers and Acquisition on the financial performance of West. International Journal of Education and Research , 2 (1).

zook, C. (2015, October 13). webpagefx. Retrieved January 24, 2018, from webpagefx.com: https://www.webpagefx.com/blog/marketing/history-of-facebook-acquisitions-infographic/

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