Olympus Saga

Olympus agrees to acquisitions probe

The more I learn about business, the more one thing becomes clear: ability is a small part of running a business. There are many ways to excellence and profits in business, and ability is definitely one of them. Business however, I have learned, is more complicated than that. As the Olympus saga illustrates, many times businesses are able to survive misspending millions. As long as the business model remains intact and there is somebody who thinks that the business can generate cash at an acceptable rate of return, the business will survive. I also see compliance and not ethics as the defining force for the code of conduct, which I attribute to the fact that self-interest is the defining force of capitalism. Unsurprisingly, unbridled self-interest can be fairly self-destructive as well. Regulations keep that in check to some extent, but there are always people looking for a loophole. So goes the game of cat and mouse.

In terms of M&A, it brings out some critical questions like value of an acquisition to the buyer and the fees paid to advisors. Already enough research papers have indicated that, at least in the short-run, the value of the acquisition goes to the seller. Deals like the infamous sale of ABN Amro raise a pertinent question on the effectiveness of advisors. The last thing the M&A world needs is the use of advisory as a cover for siphoning away millions from a company. All in all, an ignominious event in the corporate world that should be dealt with firmly.

Potential Upcoming Deal-business from European Aeronautic Defence and Space Company (EADS)

In a recent article in the Financial Times (August 2011), EADS’s chief financial officer stated that the company is looking to make acquisitions to put its €11bn of net cash to work and rebalance its portfolio.

Data from public sources indicates that in 2011 alone EADS subsidiaries have announced five acquisitions valued at about £1510m. These include acquisition of Vizada by Astrium, Satair and Metron Aviation by Airbus, Vector Aerospace Corporation by Eurocopter Holding and Grintek Ewation by Cassidian. Of these, Vector Aerospace Corporation deal was completed recently in June 2011. With so many acquisitions already in the pipeline and with presumably more to come, a full service firm can offer EADS a variety of services and advice.

For example, 'Consultancy’ practice can possibly help EADS with acquisition search and due diligence. Then ‘Corporate Finance’ can provide M&A Advisory and deal accounting service. Finally, ‘Transaction Services’ could offer M&A Integration and post-acquisition performance improvement advice.

About EADS: EADS engages in the manufacture and sale of commercial aircraft, civil and military helicopters, commercial space launch vehicles, missiles, military aircraft, satellites, defence systems, and defence electronics, as well as provision of services related to these activities worldwide.

About Aeronautics and Aviation industry: According to a report by ‘Ecorys Consulting’, the aviation industry has been under duress due to the financial crisis, which is critical for a capital intensive and global industry. Another recent report by ‘Roland Berger’ indicates that due to the crisis defence sector is also expected to suffer due to cuts in state spending. Business leaders expect the industry to return to pre-crisis growth levels at least by 2012. Overall, this state of aerospace and defence industry should present cash-rich EADS with good bargains in the market.