Mergers & Acquisitions still in vogue

Allergan is the latest company to be bought in a banner year for M & As

Irvine-based Allergan is the latest company to be bought in a banner year for M & As

Mergers & Acquisitions in 2014 have reached their highest point since the turn of the century — the $1.5 trillion in M & As recorded this year is the most since 2000, according to financial information firm Thomson Reuters.

The theme continued this past Monday, with more than $100 billion in M & As accounted for between Allergan being bought out by Irish pharmaceutical company Actavis  and Halliburton acquiring oil company Baker Hughes.

For Allergan, the bio-tech company based in Irvine, the deal was especially sweet. The firm best known for making Botox was the target of a hostile takeover from hedge fund manager William Ackman and Valeant Pharmaceuticals for several months. Not only did Actavis pay more for Allergan — $66 billion, or $219 per share compared to Ackman/Valeant’s reported ceiling of $209 — but vowed to cut funding for research and development much less than the previous offer. Ackman still made out ok, though, since he had been accumulating shares since they were in $120s earlier this year. His 10 percent stake in Allergan saw $2.3 billion in paper gains this Monday.

Halliburton, on the other hand, was already the second biggest oil services company before buying Baker Hughes — which was the third largest. Despite a mixed reaction from shareholders so far, Halliburton believes the deal will lead to “cost synergies” of $2 billion per year and increase the company’s product line , according to Forbes.

Monday’s activity highlights how commonplace the practice has become. The Economist cautioned 20 years ago about the potential pitfalls of combining companies, and that was after a “mere” $210 billion had been registered by September, 1994.

The Economist worried M & As were too common -- 20 years ago

The Economist worried M & As were too common — 20 years ago

Critics of large M & As point to several potential issues. First, many workers often lose their jobs when companies merge. This was evident when Sprint fired thousands of employees when they were acquired by Japanese telecommunications firm Softbank last year. The deal hasn’t found a way to make the company more of a threat to AT&T and Verizon yet, with Sprint recently announcing 2,000 more people would be losing their jobs.

And in many cases, there are reservations about M & As creating conglomerates that are too powerful — leading to monopolies and oligopolies. The Halliburton – Baker Hughes connection will certainly draw scrutiny from regulators concerned about antitrust violations. Although the deal will not be formalized until next year, shareholders may already be wary — with the company’s shares falling two percent a week after the deal was announced.

This isn’t unique to Halliburton, though. In general, mergers aren’t well received by the shareholders of the company buying out another firm. However, for investors of the company being bought, the opposite is true, because they are normally being bought at a premium. Allergan was bought for a five percent markup of the current share price on Monday, after they had already skyrocketed since the beginning of the year.

Lastly, the tech industry has been a hotbed for buyouts of late, and the exorbitant prices companies are paying for startups has many thinking this is the second coming of Dot-Com Bubble. What makes these purchases especially tricky is that many times the companies being bought aren’t publicly traded, so deciding on a market value for the business is rather arbitrary. Facebook buying messaging platform WhatsApp for more than $19 billion raised eyebrows for its seemingly over-the-top price. And even though the deals are worth billions of dollars, they can seemingly happen on a whim. Mark Zuckerberg reportedly said he “must have” virtual reality tech company Oculus earlier this year, and closed the $2 billion deal so fast that several high ranking executives at Oculus didn’t even know it was in the works until they showed up for work and found out they had been bought.


NPR outlined some notable tech mergers from the past decade

NPR outlined some notable tech mergers from the past decade

While there are red flags to consider when companies merge, recent activity suggests it won’t be slowing down anytime soon.


Spring: A Revolutionary Mobile Shopping App?



App Spring. The name comes from a shopping destination in New York City’s SoHo – “Spring Street.” Similar as most of the stores on Spring Street, the app “is meant for the modern high/low shopper, who buys key luxury pieces and mixes them with fast-fashion[1].”


In the middle of August, a new mobile shopping app was launched – Spring, and even the media called it “revolutionary[2].” Two months before its debut, Spring has already gained $7.5 million in its series A financing. According to WWD, a website aims at providing news about fashion, beauty and retail industry, investors includes Groupe Arnault, which is under the charge of Bernard Arnault, the president of LVMH Group; Theory’s former CEO and renowned fashion investor Andrew Rosen; Coach’s former CEO Lew Frankfort; and Rachel Zoe, who is recently a heated spot in the fashion industry.


Consumers can make a purchase buy only one click, except for the first time when they’ll need to input their credit card information and shipping address.


Spring is a mobile shopping app which adopts marketplace pattern and combines photo sharing app Instagram’s visual elements, dating app Tinder’s compulsive swipe-down design, and Twitter’s “favorite” and “follow” functions. Here’s how Spring works. Brands release selective products on the app, and they are in charge of pricing and display of products. Consumers can make a purchase buy only one click, except for the first time when they’ll need to input their credit card information and shipping address. Spring will collect orders made on the app, and then send back to the order managements systems of each brand to let them process the orders and take care of delivery.

Spring is different because it provides a platform for brands to communicate with consumers directly. There used to be mainly 2 ways for brands to connect with consumers via mobile apps. The first is some popular social networking apps such as Instagram and Pinterest. However, consumers can’t buy directly from these apps. In addition, as David Tisch, one of the co-founders of Spring said, it can get awkward when brands come in social media. The second is social networking e-commerce apps, such as DongXi. Usually, at first, the apps will allow consumers to upload and share photos of the products they like. But later, the “buy” function will be introduced. But still, as Tisch mentioned, “the best shopping experience is not user-generated content and brands then jumping in, but how to capture that feeling of walking 5th Avenue or your favorite mall.”

That’s how Spring is unique. It’s a pure e-commerce app which fills the gap between brands and consumers, but at the mean time, it saves their time to download independent apps from retailors or brands. Instead of pushing all their products to users, brands only release products “with souls[3],” which means products that these brands believe can represent and show their image. It leads brands to focusing more on their products, because products are their advertisements on Spring – this is how Spring enables brands to talk to consumers directly.

Traditional e-commerce platforms, such as Zappos, usually act like an agent between brands and consumers. They carry the brands which grant them rights to sell their products, and these platforms need to take care of the whole purchase process from stocking, displaying, to shipping. Thus, the cost of traditional e-commerce platforms includes inventory and shipping expenses, and they mainly profit from sale.


Brands manage their own accounts, and Spring doesn’t participate in their selling process – it’s only a platform for brands to communicate with their consumers directly.


Different from traditional e-commerce platforms, Spring isn’t involved in any purchase process except for collecting orders made on the app and sending them back to every brand’s independent order management system. In other words, it doesn’t have inventory and shipping cost at all – its major expense is the app’s operating cost.

Spring profits from commission from every purchase, which according to Tisch, is less than 8%, and even lower when the product is exclusive on Spring. This measure strengthens the reciprocal relationship between brands and the app. On one hand, exclusive products can help Spring attract more users; on the other hand, brands will be more able to speak their “souls.”

However, another co-founder, who is also the CEO of Spring, Alan Tisch said that the app is able to gather information about consumers’ browsing and purchasing habits. Not only can brands better control their inventory by analyzing the statistics which show the sizes and colors that are the best sellers, but also they can know how to draw consumers’ attention by interpreting the data collected by Spring – this is no doubt a tempting asset. However, Alan Tisch didn’t mention how much they’ll charge for the service.

Spring indeed provides something new to its consumers, but whether it is revolutionary is still, in my opinion, open to discussion. I have to say that, I felt the impulse to make a purchase when using the app, because all the products on it were so selective and the visuals were great. However, if Spring wants to stay in advantage, it has to find out a way to utilize statistics collected from users’ browsing habits and purchasing patterns, because this is something only Spring can do but nothing else can. Spring is the only one pure e-commerce app which has perfectly incorporated beneficial features of social media while avoided its shortcoming – in this case, Spring is indeed revolutionary.