Merger Activities Analysis for Experian - Literature review Example

Experian, Plc: Merger Analysis There are numerous variables that prompt companies to pursue merger activities. However, the most important of which is that such strategy is expected to yield several synergistic benefits. This paper will explain this argument in the context of Experian, Plc’s experience. Specifically, the aim here is to determine the factors that led the company to acquire several enterprises and determine future merger activities out of the pattern identified from motivations and objectives. Background Experian, Plc. is a company headquartered in Dublin and with offices and affiliates in at least 40 countries across the globe. (Experian Plc. 2010) This company, in its history, has acquired numerous other corporations allowing it to expand its products and services. By 2009, Experian, Plc. declared in its annual report that its business now covers the provision of information, analytical tools and marketing services to organizations on a global scale which helps their clients manage risks, find and retain customers as well as automate decision-making. Experian, Plc. has a long history of mergers and acquisition. The main player in Experian’s development, however, was TRW. In 1996, TRW sold its Information System & Services Division to an investor group which in turn sold it to the British General Universal Store PLC (GUS PLC), which later merged the division with CCN. (Jentzsch 2007, p. 73) This conglomerate became what is now known as Experian and has an accumulated 240 million consumers in its file with a strategy guided by an aggressive acquisition around the world. (p. 73) Experian’s Information Solutions alone works with over 50,000 clients across industries including financial services, telecommunications, healthcare insurance, retail, catalog, automotive, manufacturing, leisure, utilities, property, e-commerce and government. (Plunkett 2006) Merger Strategy As previously mentioned, Experian, Plc. follows an aggressive acquisition strategy around the world, successfully penetrating many European countries and as far as South Korea and South Africa. The latest of its overseas foray involved the acquisition of the full license to operate a credit bureau in India. This emphasis on merger activity is driven by the aim to gain competitive advantage by acquiring a wide range of services. According to Jenzsch, Experian has two other big rivals and that the competition is fierce with the high volume of credit reports needed by industries and consumers. (p. 74) All in all Experian’s range of merger activities reflect a vision which involved: Filling the gaps in expertise and increasing specialization; Adding complementary practices and services to increase customer value; Expanding geographically, with the goal of solidifying the firm’s position both domestically and internationally; Increasing the diversity of its customer base; Solidifying its relationship with its clients; and, Enhancing the level of sophistication of the work through the sheer breadth and depth of services. (HI 2004, p. 3-4) Processes The dynamics of Experian’s mergers including the motivations behind it can be demonstrated in the activities of TRW. Because of a history of anomalies, bad publicity and unhappy consumers – all inherent to credit reporting - TRW Information Systems was sold to two Boston speculators. This new company hired the same corporate makeover firm that invented “Exxon” and “Xerox” and coined for the company “Experian” before selling it to GUS in the same year. According to Smith (2000), this development resulted to the transfer of 170 million Americans to the hands of the British GUS, which already possesses 708 million credit reports in 40 other nations. (p. 329) Then, the Experian-Great Universal merger was completed with the further acquisition of Metromail, Inc., the leading direct-marketing company in the US. The entire affair proved advantageous to Experian. It not only expanded its services but also it enabled the company to acquire valuable resources for its other operations and services. Through the merger, Experian could now apply its sophisticated techniques for developing demographic categories and credit predictability to Metromail’s massive lists of virtually every household in the US. (Smith, p. 329) In the same way, this is also the strategy in regard to how Experian acquired Direct Marketing Technology or Direct Tech, a company that processes billions of direct mailings. Such acquisition stemmed from Experian’s own MOSAIC, an international system that identifies consumers according to the type of neighborhood in which they live. According to Meña (1999), MOSAIC allows Experian to perform analysis of consumers worldwide and that the acquisition of Direct Tech resulted to the dramatic expansion of the company’s databases of demographic and financial information. (p. 241) This humongous resource enabled Experian to further develop a comprehensive and sophisticated system in analyzing consumers worldwide. The merger/acquisition processes mentioned above involved organizations in distress, venture capitalists and holding companies. Their interests diverged and the series of agreements leading to the merger resulted in the exercise of greater market power for Experian. In addition, Correia et al. (2007), stressed how companies such as Experian reduced competitive pressure through mergers, which could allow the company certain ambitious moves such as how it could raise the prices of its products and services without losing market share. (p. 17-3) Indeed, after all the mergers and acquisition, Experian came to operate in four business lines – credit information, decision analytics, marketing services and interactive solutions – a factor that makes it impossible to identify a competitor that operates with the same breadth of services. The diversity of services is one of the most important synergistic benefits of the merger. Integration As with the experience of Experian, just as much as the accepted principle in mergers, one of the most important aspect in merger activities are the styles of due diligence and negotiation adopted by stakeholders as they work out the terms of agreement. A distrustful, hostile negotiating process, wrote Lajoux (2006), will result in deep-seated suspicions and antagonism between management teams of the two previously separate companies and that often, this is exacerbated by postclosing litigation over alleged inaccuracies in the merger agreement. (p. 48) Careful thought, evaluation and planning, hence, are fundamental steps for successful integration of merging entities. In this regard, merger agreements should contain basic assurances about postmerger life beyond the financial projections such as those pertaining to future events and the covenant not to compete. (p. 48) This has been seen in the 2006 demerger between Experian and GUS. The arduous process was characterized by protracted negotiations especially those that concern the “orphaning” of the demerged organizations and its impact on the profitability and stock price of the companies involved. Nonetheless, the excellent merger agreement drafted from the start, allowed for the ease in the legal processes in order to successfully proceed with the demerger. For instance, a solution was easily identified in the form of the so-called “anti-orphaning” clause in the new demerger agreement. (Robbe 2008, p. 166) Future Prospects Experian’s extensive experience in the area of mergers and acquisition, allows it to develop its own measures and best practices in regard to its future merger prospects and activities. The company has its share of failures and successes – variables that are fundamental in its future acquisition strategy. According to Buigues and Rey (2004), future mergers could be undertaken by building a “meta-model” encompassing all relevant characteristics and factors in order to develop a clear understanding in regard to whether another merger or a future merger is viable for a company. (p. 103) Experian has an advantage in this area. Its experiences are valuable resource in the overall assessment in pursuing merger activities as well as in ensuring a greater degree of control over the processes including the risks that the mergers entail. Conclusion Experian Plc. - its experience – is an excellent demonstration of how mergers benefit companies in terms of creating costumer value, expansion of services, and acquisition of more consumers, among other factors that enhance competitive advantage. The number of acquisitions and mergers the company was involved in contribute to the resources available especially in terms of determining the best possible approach in order to proceed with a successful merger. In addition, this experience also underscores how the market movements represent a crucial part in mergers. Most importantly, however, in the context of the purposes of this paper, Experian’s activities clearly revealed all the elements in the merger process from the motivation, merger process to planning and integration. Patterns, decisions and other forces – both internal and external – helped outline the path of the conglomeration of Experian. In some instances, the strategy is successful while in some, it is not. In the area of motivation, for instance, Experian demonstrated that it could be driven by at least three motives: to replace incompetent management, to seize the opportunities offered by the economies of scale and to achieve market power. Moreover, it is clear that there is no single or standard mechanism of merger. Instead, there are several radically diverse ones. But, in studying Experian’s merger and acquisition activities, one could identify the merger’s effects on the organization. Particularly, its benefits and related performances could be measured. Also, the merger activities also help in predicting risks in future merger and acquisition initiatives for the company. For Experian, its experience only leads to an increasingly sophisticated and efficient merger capability. References Buigues, P and Rey, P 2004, The economics of antitrust and regulation in telecommunications: perspectives for the new European regulatory framework. Cheltenham: Edward Elgar Publishing. Correia, C, Flynn, D, Uliana, E and Wormald, M 2007, Financial Management. Cape Town: Juta and Company, Ltd. Experian Plc. 2010, Experian: A World of Insight. Experian, Retrieved 14 April 2010, from http://www.experianplc.com/. Hildebrandt International (HI) 2004, Anatomy of a law firm merger: how to make or break the deal. American Bar Association. Jentzsch, N 2007, Financial privacy: an international comparison of credit reporting systems. Leipzig: Springer. Lajoux, A 2006, The art of M&A integration: a guide to merging resources, processes, and responsibilities. McGraw-Hill Professional. Meña, J 1999, Data mining your website. Woburn: Butterworth_Heinemann. Plunkett, J 2006, The Almanac of American Employers 2007 (E-Book): Market Research, Statistics and Trends Pertaining to the Leading Corporate Employers in America. Plunkett Research, Ltd. Robbe, J 2008, Securitization Law and Practice in the Face of the Credit Crunch. New York: Kluwer Law International. Smith, R 2000, Ben Franklins web site: privacy and curiosity from Plymouth Rock to the internet. Privacy Journal. Read More