1) Why have these three firms chosen to grow by acquisitions?

What are the similarities and

differences in growth strategies among the three firms?

Symantec Corporation, a technology company known for its software solutions, has pursued growth
through acquisitions. A range of key objectives drives this strategy:
1. Technology Finance Arbitrage: Symantec capitalizes on acquisitions to acquire innovative
technologies more cost-effectively than in-house development, bolstering its competitive edge.
2. Market Dominance: Through acquisitions, Symantec widens its product portfolio and market
share, reinforcing its dominant position in the computer software industry.
3. Lock-In Consumers: Symantec integrates its software products into convenient bundles,
enhancing consumer retention by simplifying their software needs and making it challenging for
them to switch to competitors.
4. Quick Transactions: Symantec's reputation for swift acquisitions is crucial in the fast-paced
technology industry, where agility in acquiring new technologies and products is essential.

Republic Industries, a diversified holding company with auto dealerships and rental car agencies,
employs acquisitions for various reasons:
1. Cost Reduction: Merging with or acquiring other companies allows Republic Industries to
streamline operations and eliminate duplications, leading to substantial cost savings.
2. Risk Mitigation: By diversifying across products, services, and markets, Republic Industries
minimizes exposure to risks linked to individual business lines or regions, enhancing its stability.

US Office Products, an office supplies retailer, utilizes acquisitions for:

1. Economies of Scale: Acquiring office supply retailers amplifies US Office Products' size and
purchasing power, enabling negotiation of lower prices from suppliers and benefiting from
economies of scale in marketing, advertising, and distribution.
2. Market Expansion: Acquiring office supply retailers in new geographic regions expands US
Office Products' reach and customer base.

While all three companies have grown through active acquisitions, their strategies differ in terms of
focus and risk appetite. Symantec prioritizes innovative technologies, while Republic Industries and US
Office Products emphasize cost reduction and market expansion. These distinctions reflect the
companies' adaptability to their specific industries and competitive landscapes.

2) What are the similarities or differences in the “typical” acquisition deal structures of the three
firms? How might these structures support the firm’s growth aims?
Three firms are utilizing a strategy known as "dirty pooling," where they acquire other companies using
their own stock as the currency rather than cash. This approach offers a distinct advantage by
eliminating immediate tax liability for the selling shareholders. Notably, this strategy has gained
popularity among investors due to its ability to diversify portfolios efficiently as done in US Office
Products and the other twos. This can be observed through the substantial number of acquisitions
executed within a relatively short timeframe, reflecting the attractiveness of this method, up to 52
acquisitions per year for Republic Industries. In particular, Republic has turned to cash in recent years
which can be more expensive to finance the acquisition given they are taxable.
Moreover, the stock-for-stock M&A structure has proven effective for firms like Symantec Corporation
and Republic Industries in achieving their objectives of enhancing earnings per share (EPS) momentum
and realizing economies of scale. These transactions enable businesses to minimize immediate EPS
dilution, providing stability and aligning with their long-term value-creation goals. By consolidating
operations and leveraging their combined size, these mergers can realize significant cost savings,
ultimately boosting profitability and supporting EPS growth.
However, it's important to acknowledge the potential drawbacks associated with stock-for-stock
mergers. If the acquiring company's shares are undervalued, there is a risk that the shareholders of the
target company may not receive an equitable value in the exchange. Additionally, if the acquiring
company's shares underperform after the merger, the shareholders of the target company could face
losses, as was the case with Republic Industries, where the restated EPS figures were notably lower than
the original projections, signalling the importance of careful execution and valuation considerations in
these transactions.
3) How have the three firms performed in recent years? How might their acquisition strategies have
affected this performance? Why?
None of the three corporations could meet the investment expectations of Nelson Poole, who applied a
dual investment perspective. He incorporated "value investing" principles by seeking undervalued
securities and "growth investing" strategies, focusing on firms with promising growth prospects. Poole's
decision to invest in these companies was primarily driven by their perceived growth potential.
However, none of these chosen firms ultimately lived up to the anticipated growth and value, leading to
disappointment among Poole and fellow investors.
Symantec’s Republic Industries US Office Products
Corporation
EPS Growth -243% 307% 15%

Furthermore, when assessing corporate performance, it's crucial to consider metrics beyond EPS growth.
EPS growth can be deceiving, as it often disregards the hidden costs associated with acquisitions.
Acquiring companies typically pay a premium for the shares of the target company, which can
temporarily dilute EPS. Therefore, it's imperative to delve into metrics such as EVA (Economic Value
Added) and MVA (Market Value Added), as presented in Exhibits 4, 7, and 10.
A negative EVA or MVA can signify a range of issues within a company, including the inability to
generate sufficient cash flow to cover the cost of capital. This might result from factors like high
operational costs, low pricing strategies, or inefficiencies. Alternatively, it could indicate that the
company is investing in projects that fail to yield returns exceeding the cost of capital, which could stem
from poor investment decisions or unfavourable market conditions.
4) What lessons do the three acquirers offer Nelson Poole? If he considers investing in an active
acquirer, what questions should he ask?
The lessons from the three acquirers offer Nelson Poole important insights into making investment
decisions in the context of active acquirers. If he is considering investing in an active acquirer, here are
the key questions he should ask:
Focus on Economic and Market Value Added (EVA and MVA): Instead of solely concentrating on
growth potential, Poole should inquire about the economic value added (EVA) and market value added
(MVA) figures. These metrics can provide a more holistic view of a company's profitability and value.
By understanding how much economic value a company is creating relative to its costs and how much
value it has added to the market, Poole can better assess the company's financial health and performance.
Target Company Identification and Evaluation Process: Poole should inquire about how the acquirer
identifies and evaluates target companies. A disciplined and proven process for identifying and
evaluating potential acquisitions is essential. This process should include criteria for selecting target
companies, due diligence procedures, and a clear understanding of how these acquisitions align with the
acquirer's strategic goals.
Integration of Acquired Companies: Assess how the acquirer integrates acquired companies.
Successful integration is crucial to achieving synergies and realizing the full potential of the
acquisitions. Poole should look for a company with a strong track record of successfully integrating
acquired businesses, as this indicates that the acquirer can effectively manage post-acquisition
challenges and make the most of the newly acquired assets.
By asking these questions and considering these factors, Nelson Poole can make more informed
investment decisions when evaluating active acquirers. These considerations go beyond just growth
potential and take into account the financial health, acquisition strategy, and integration capabilities of
the companies he's considering investing in.