Introduction
One of the surprise acquisition announcements that was made and closed within a single month was the acquisition of Qik by Skype Limited (Venture Deal, 2011). The acquisition deal was announced at Consumer Electronics Show (CES) on 6 January, 2011 (Indvik, 2011). The acquisition was completed within a period of a week, where it was officially announced on both company’s websites on 14 January, 2011 (Skype Limited, 2011b). There are several aspects distinctive to this acquisition, other than the fact that it is the first acquisition by Skype. In that regard, this paper will attempt to cover the main point of the deal.
Strategy
First and foremost, the acquisition perfectly fits within the strategy of Skype, in terms of goals, aims, and sphere of business. A business strategy is “concerned with ways of achieving, maintaining, or enhancing competitive advantage in product market”; video conferencing is one of the products of the company, which competitive advantage it intends to enhance (Sudarsanam, 2010). The aim of the company- Skype, in that regard, can be seen through enhancing the competitive advantage of the company, through adding new capabilities to its portfolio represented through the service offered by Qik, and the expertise of its human resources. Additionally, both share “a common purpose of enriching communications with video” (Indvik, 2011). The capabilities include “adding recording, sharing, and storing capabilities to Skype’s product portfolio” (KS&R, 2011).
Regulatory
It can be stated there are no apparent regulatory implications for the acquisition. The only aspect that can be discussed in this case is the possibility of antitrust and government competition policies. Nevertheless, the environment is competitive in this sphere, where it can be stated that the acquisition might be increase competition with other products such as Apple’s proprietary Face Time software (Skype Limited, 2011a). Additionally, the acquisition can be characterized as friendly, specifically considering having two common board members, Marc Andreessen and Ben Horowitz, “who could have helped facilitate the deal” (Indvik, 2011).
Valuation
The details of the deal were not disclosed, and at the same time, there is no financial information available on the revenues of Qik. Thus, it can be assumed that the valuation of the company was based on potential user base, and the estimation of the company’s stream-line video technology. With the absence of corporate information, it can be assumed that the valuation was based on relative valuation, i.e. valuation based on comparable companies and comparable transactions (Dash, 2010).
Finance
The sum paid is correlated between $100 and $150 million, with the latter being stated to be divided between $121 million in cash and up to $29 million in contingent payments (Venture Deal, 2011).
Defence Tactics
Considering that here are common board members in both companies, the defence strategies are mostly to increase the price of the offer. Thus, the announcement of the partnership with T-mobile, and the rapid growth from 600, 000 users to 5 million users within the period of a year -2010, can be seen as an external defence strategy for informing analysts about “company strategy, financing policies and investment programmes” (Sudarsanam, 2010).
Implementation
The integration of the companies is unlikely to be difficult, and as of the present time, considering the number of staff employed and the nature of the business operations. As of now the companies continue to operate within their usual mode, and in the same strategic direction. It is likely that the integration will lead to collaborative efforts in the development of Skype products, while the Qik’s main service will continue operating on its own. It can be stated that in such acquisition, both parties are winning, with the factors cited for the success of mergers being applicable in this cases, including a clear purpose of acquisition, good cultural fit, and in-depth knowledge of the industry (Arnold, 2009).
Risk
It can be concluded that despite the apparent benefits of the deal, it is still early to evaluate its success. The main risk in that regard is for the present acquisition can be seen in the failure to deliver value to the investors. Considering the expertise of the companies, it is more likely, however, that the acquisition will prove to be successful in delivering the common objectives of both companies.
References
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INDVIK, L. 2011. Skype Acquires Qik for $100 Million [Online]. Mashable.
KS&R. 2011. Skype to Buy Qik Mobile Video Livestreaming Service [Online]. KS&R, Inc. Web.
SKYPE LIMITED. 2011a. Qik Launches New iPhone Video Apps [Online]. Skype Limited. Web.
SKYPE LIMITED. 2011b. Skype – Qik acquisition complete [Online]. Skype Limited. Web.
SKYPE LIMITED. 2011c. Skype to Acquire Qik [Online]. Skype Limited. Web.
SUDARSANAM, P. S. 2010. Creating value from mergers and acquisitions : the challenges, Harlow, England, Financial Times Prentice Hall.
VENTURE DEAL. 2011. Venture Capital M&A Quarterly [Online]. Venture Deal.