WHY MERGE OR ACQUIRE?

Vertical Integration
Horizontal Integration Synergy - 1+1 = 3!! Good Deal!! Competition - The biggest enemy of your biggest enemy is your biggest friend Acquire talent IP/Patents

New market/customers
New Technology Complimentary to business model

POPULAR M&A

Horizontal Integration Competition ebays Billpoint payment platform

Another communication method for ebay-ers. No platform fit

Buying competition?? Horizontal integration on mobile. MS in Live Messenger the same capabilities 300 M active users. Skype has 125M active; 8 M paying customers; $30 /paying customer MS - $8B => Each paying customer valued at $1000 !!!!

Buying competition from AOL Complement-or to platform; Vertical Integration Access to Hotmails userbase

Year Price $ Revenues P/E

2002 1.5B 1.08B 1.39

2005 3.1 B 72 M 43.06

2011 8.5 B 860 M 9.88

1998 400 M **** (9 M users) ********

To be integrated into previous slide through animation.

2005: eBay buys Skype for ~ $3.1 B. Skype in 2005: Revenue $71.8 M; Loss $47.61 M. 2007: eBay $1.4 B write down on Skype. Skype in 2007: Revenue $381 M; Loss $1.4 B. 2009: eBay sells 65% of Skype for $2 B to PE firm. The deal valued Skype at ~ $3 billion. Skype in 2009: Revenue $718.9 M; Loss $417.5 M. Skype in 2010: Revenue $860 M; Loss $6.9 M.

2011: Microsoft buys Skype for $8.5 B.

Did ebay make any money?

POPULAR M&A

Entry to new Vertical New Technology

Compliment Vertical integration video content

Higher market share Synergy

Vertical and Horizontal integration. Keep away from competition Complimentors IP/Patents Talent base

Year Price $ Revenues P/E

WILL ADD DATA LATER

TECH-MAHINDRA SATYAM: DISTRESS ACQUISITION

History

Satyam (NYSE: SAY) was amongst top 4 Indian system integrators; Multi-nationals GE, GM, Nestle amongst clients; Presence in multiple industry verticals; 2009 headcount 53,000; Revenues $2.1B

Financial fraud uncovered; revenues overstated CEO at center of fraud

Indian govt. stepped in and formed an interim task force to keep company running and process for sale. initiated a bidding

Acquisition

Tech-Mahindra - Amongst top 10 of Indian software system integrators; expertise in Telecom; small client base - five clients constitute 85% of its revenue and out of the U.K. which accounts for about 68% of revenues. 2009 - Winning bid of Indian Rupees 58 ~ $1; valued Satyam at $1.1 B; Merger to be effected post fraudulent law suits are settled. Immediately, after winning bid, a lot of senior mgmt. moved to Satyam to steady the ship.

Post-Acquisition

Greater emphasis on client and employee engagement

Revenue for 2010 - $1.15 billion for Mahindra Satyam and $1 billion for Tech Mahindra. Won more than 40 new clients and regained five lost clients in FY10. The 2 companies began to share resources internally, jointly bid for new projects/clients internal collaboration in place.