CTO- Merger Acquisition

CTO- Merger & Acquisition

Mergers and acquisitions (M&A) are an important part of the growth strategy of many companies. These involve important strategies in financing, governmental oversight, taxation, corporate culture, and technological synergy. Unfortunately, after studying more than 5,000 acquisitions, divestitures, spin-offs, equity investments, and alliances, Frick and Torres discovered that over half of the deals resulted in a lower market value for the resulting entities. (37)

Other McKinsey studies in the late 1980's reported that, at that time, more than 70 percent of acquisitions failed to earn back the cost of capital used to purchase the company. (72) Frick and Torres maintain that there are two major causes of this problem. First, the acquisition becomes an exercise in financial engineering. It focuses on successfully structuring the finances required to make the acquisition possible and loses sight of the strategic objectives of the acquisition. Second, it is a form of corporate ego boosting. Corporate leaders are eager to build an empire or capture high profile products. Frick and Torres contend that, in contrast to these two motives, value creating mergers and acquisitions are focused on the strategic value that can be achieved through the transaction. However, to make this happen, it is essential that the due diligence leading up to the deal includes an evaluation of the value of the technologies being acquired. The CTO's role in due diligence includes evaluating patents, reviewing technical publications, and studying trade data to determine the value of the target company and to rank it against its competitors.

As an illustration, Wayne, Pa.-based Safeguard acquires or invests in a company. The CTO at Safeguard has the task of helping to extend strategic relationships. The CTO is very effective in the commercialization/incubator environment, and plays a key role in the investment strategy. In an investment situation, a CTO has to attend a number of social events where some entrepreneurs pitch plans. Another aspect to this job is an actual acquisition of technologies; however, discussion of acquisition is beyond the scope of this book. (48)