Case BOMBARDIER /ADTRANZ
Two very important reasons for an acquisition are:
1 Possibility to expand internationally;
2 The potential to transform a company and to enrich a firm. What is the Why Rationale?
With the cross border acquisition of Adtranz by Bombardier Inc. (BBD) it enabled Bombardier Transportation (BT) - a division of BBD - to enter the local European markets, obtain know-how and access to European engineering concepts needed in emerging markets like Asia and South America and other markets or influential groups demanding European equipment and technology. Apart from this, it would clearly strengthen BT¡¦s global reach. With this acquisition it wanted to balance revenue streams in the different groups within BBD and to create a healthy balance against BBD Aerospace Group.
BBD is a Canadian corporation engaged in design, development, manufacture and marketing in the aircraft, rail transportation equipment and recreational product industries. In addition, the company offers services related to its core products and core businesses and is, through subsidiaries, involved in financial services and the development of real estate interests. Although BBD¡¦s acquisition strategy was focusing to complement or strengthen businesses, they had been growing predominately through acquisition of companies in poor shape. They have been very successful in turning around companies with poor performance by implementing tight controls. BBD was also strong in product costing and tendering, as opposed to Adtranz.
ADtranz, which is wholly owned by DaimlerChrysler AG, is engaged in the manufacture and distribution of rail transportation vehicles (Propulsion Systems and Train Controls). Its current activities cover the manufacture and sale of rolling stock equipment as well as fixed installation and signalling equipment. Although the turnover of Adtranz was in excess of $ 3.3 billion, Adtranz was not the core competence of DaimlerChrysler. Adtranz was a relatively new company (in existence since 1995) build from a collection of many different companies where each newly acquired company brought in its own business philosophies, they never had the chance to develop their own homorganic culture. When we look at both companies, I feel there is a definite potential for BT however there are quite a number of potential pitfalls. At first look it seems like the opportunity of a lifetime.
For BT to establish itself in the European market is very difficult. The industry BT is in, is rather specialized and requires large amounts of funding. If starting greenfield next to this, Adtranz already has a customer base and is very aware of European regulations and customer requirements. For BT to enter the European markets where railway and train products are fundamentally different (BT had no experience in propulsion systems, high speed and inter-city cars and signalling systems), they almost always need to create an alliance with one of their ¡§competitors¡¨.
As transport equipment and propulsion equipment have a high degree of complexity, a complementary acquisition such as this one enables a company to grow faster and develop markets and products. BBD has a long and extensive track record of buying companies with a strong track record of integration acquisitions. BBD has a strong reputation as assembling company, however they are weak in development.
Arguments for the merger
Faster growth of market share
Increase market power
Opportunity to neutralize a competitor
Access complementary competences ( equipment vs. vehicles propulsion) «
Access to the European market (this market has many local characteristics as products and rules can be different between different countries); geographic scope «
Creating an economy of scale and scope: increase global reach «
Expand revenue base
Complementary business and complementation of product portfolio «
BBD can be patient when...
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