Cisco Case

Cisco regarded acquisitions primarily as a means to secure scarce intellectual assets.

Cisco had three primary objectives for acquisitions. In order of priority, the company measured

The success of its acquisitions by: 1) employee retention; 2) follow-on new product development and 3) return on investment.

Cisco viewed acquisitions as a means to ensure that it was offering the "best of breed" product technology.

Most people forget that in a high-tech acquisition, you really are acquiring only people.

High levels of employee retention keep expertise within the company. In the first two years after an acquisition closes, Cisco retains nearly 100 percent of employees who transition from the acquired company. Long-term employee retention levels are also high.

Human Resources "What will happen to my job?" is the first question asked by employees when their company is acquired by Cisco. Employees are a critical part of the acquisition strategy, because they hold the key to the next generation of the product.

High levels of employee retention In the first two years after an acquisition closes, Cisco retains nearly 100 percent of the new employees. Long-term retention levels are also high, at 85 percent from 2002-2006 and 45 percent since the early 1990s.

It is not very easy for companies to acquire because of:

Poor strategic fit - The two companies have strategies and objectives that are too different and they conflict with one another.

Cultural and Social Differences - It has been said that most problems can be traced to "people problems." If the two companies have wide differences in cultures, then synergy values can be very elusive.

Incomplete and Inadequate Due Diligence - Due diligence is the "watchdog" within the M& A Process. If you fail to let the watchdog do his job, you are in for some serious problems within the M & A Process.

Poorly Managed Integration - The integration of two companies requires a very high level of quality management. In the words of one CEO, "give me some people who know the drill." Integration is often poorly managed with little planning and design. As a result, implementation fails.

Paying too Much - In today's merger frenzy world, it is not unusual for the acquiring company to pay a premium for the Target Company. Premiums are paid based on expectations of synergies. However, if synergies are not realized, then the premium paid to acquire the target is never recouped.

Overly Optimistic - If the acquiring company is too optimistic in its projections about the Target Company, then bad decisions will be made within the M & A Process. An overly optimistic