Bombardier Transportation & the Adtranz Acquisition Essay
Bombardier Transportation & the Adtranz Acquisition
Bombardier had evolved from its humble beginnings as a snowmobile manufacturer based in Joseph-Arman an Bombardier’s garage to a global business in which it’s once core recreational products were over shadowed, on a revenue basis at least, by its offerings in transportation, aerospace, and capital. In every segment in which the company operated it was either number 1 or 2 globally. This was not the case for the Transportation group (BT) in Europe, where in 2001 it sat in fourth place behind Alstom, Siemens and Adtranz (AT). However, the AT acquisition presented the opportunity to vault BT to the forefront of the industry. At a price tag of US$715 million (23% of AT’s 2000 revenue) AT was a bargain and an opportunity worth considering for several reasons:
: Unlike all other Bombardier businesses, BT’s revenue was counter-cyclical so growth in the sector would provide better balance to its overall revenue (Figure C1 in Appendix C).With the addition of AT, BT’s annual rail-related revenue could grow to US$7.6 billion in 2001 (up from US$2.2 billion in 2000) with a backlog of US$14.5 billion. 1
While BT was a low margin business it was a cash generator that helped to finance other Bombardier businesses.
: AT had a presence in a broader range of European markets and the region was viewed as the center of technological development. Asia and South America utilized European engineering and practices so AT provided BT better access to future markets.
Completion of Product Portfolio
: BT lacked propulsion system and train controls competence. This had been mitigated by outsourcing to competitors and suppliers; however it was a competitive weakness as was exemplified by AT’s exclusion from a key deal in the UK in 2000. AT excelled in these areas, and provided immediate cost synergies and long term strategic strength. Naturally the acquisition was not without its downside. There were many aspects of the deal that warranted consideration:
While BT had a successfully track record of acquisitions it had never integrated a company of AT’s size. Based on 2000 figures, AT had nearly 40% more employees, just under 50%more in sales, and operated in 60 locales. The differing company structures were also of concern.
AT posted net losses going back 4 years in spite of restructurings. Even at a bargain purchase price, an unsuccessful integration could threaten BT’s income and cash flow.
AT was understandably reticent to let a competitor gain full access to its “books” should the deal not complete, so BT’s diligence process was not comprehensive. Furthermore BT’s European management had not participated in the deal; only amplifying the potential risks.
The acquisition could trigger the loss of customers or new contracts. Additionally, AT had earned a reputation for poor production and servicing that competitors could exploit.
A comprehensive plan would be required to realize the projected synergies, tackle the above noted concerns, and – should the deal clear – anticipate and address regulator stipulations.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 24 December 2016
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