Chapter 14: Merger & Acquisition Strategies

M&A is a hotly discussed concept in the business realm. M&A stands for Mergers and Acquisitions and is defined simply as companies either combining through mergers or a larger company acquiring a competitor/niche market innovator (large or small). 

One crucial reason for mergers and acquisitions is for entities to bring about a corporate diversification strategy that will push them further ahead in the market. Of course, these actions must present some tangible output in the form of increased sales or greater foothold in one or more markets. (FedEx acquiring TNT is a prime example of an acquisition gone horribly wrong). 

In the past 2 decades, Medtronic has acquired 60 companies, ranging from Titan Spine to Endonetics! Executives at Medtronic understood that the talent within the confines of the company would take them to a certain level. Beyond that, it was important to identify companies with new contributions to the medical device field. These smaller outfits could have been catering to a small portion of the market, but with an acquisition from Medtronic, the products developed by the smaller companies now will be broadcasted a much larger customer base.

A key aspect of medical device development in the healthcare sector is robotics and the utility in surgery. In Q4 of 2018, Medtronic acquired Mazor Robotics, specializing in robotic spine surgery. This acquisition allows Medtronic an extraordinary competitive edge against players like Stryker in the robotic surgery sector.

Chapter 13: Strategic Alliances

Another vital corporate strategy is the development and sustenance of strategic alliances. Barney defines a strategic alliance as a cooperation between two or more companies or outfits working in cohort toward the conceptualization and commercialization of products/services.

Companies operating individually in the market can certainly do well, however, there comes a point when the innovation meets a road block and output plateaus. The sales and revenue begin to stabilize such that growth is not experienced. During these lull periods, key strategic alliances can really push a company to the forefront of the market. Let's take a look at how Medtronic continues market domination with well-timed strategic alliances. 

In 2014, Medtronic sought to bring a greater presence in the fight against Diabetes. Sanofi is a French multinational biopharmaceutical company. The company is working on both medical and holistic approaches to patients living with diabetes. Medtronic saw an untapped market space in healthcare, and pen was put to paper. Medtronic and Sanofi have created a "global strategic alliance" to manifest a multifaceted approach to diabetes. 

In this day and age, data analytics practically drives many business practices and decision-making. Medtronic saw an opportunity here to use data and improve patient healthcare outcomes. Medtronic and Mercy Hospital entered into a strategic alliance where both parties are involved with the sharing and facilitation of patient data allowing for tangible improvements to Medtronic's medical devices currently produced and used in the field (and for future product lines).

In both cases, the companies work in concert not to benefit one's interests over the other, but to combine manpower with growing technology and continue finding and creating solutions for the millions of patients suffering everyday with illnesses.

Chapter 12: Implementing Corporate Diversification

A key corporate strategy is the ability to implement a corporate diversification, which was discussed in the previous post. 

What entails this implementation you might ask. There are agency costs either benefit or negate the relationship between equity holder and managers. The agency relationship for Medtronic is the external principals with a financial investment into the company and the agents are the managers who carry out the decisions of these external principals. Management control systems and compensation policies are all aspects to the implementation of corporate diversification, but let us briefly look at organizational structure. 

Medtronic has a multidimensional structure, or M-form. There are a board of directors who manage the decision making in the short and long run of the firm. On it sit individuals like the CEO and chairman of the board. The board also contains subcommittees which handle different aspects of the business, like auditing, finance, or compensation. In the hierarchy, board of directors sit atop the mountain surveilling the internal and external environment. 

 MEDTRONIC ORG CHART

 MEDTRONIC BOARD & ADVISORS

Chapter 11: Diversification Strategies

Continuing our discussion of corporate strategies, let us look at diversification strategies. Corporate diversification strategies are actions taken by a firm to increase or expand operations under current business practices. The diversification strategies allow the business to enter different markets all in attempts to continue to gain competitive advantages.

Within diversification strategies, a business can employ a limited corporate diversification strategy whereby the business uses one of two strategies: single-business or dominant-business.

Interestingly enough, Medtronic has products that fall into both categories of diversification strategies. The cardiac and vascular sector of medical devices is Medtronic's bread and butter. On the other hand, Medtronic is a dominant player in the minimally invasive surgical sector and the restorative therapies sector. Now, just because Medtronic is a dominant player in any specific sector does not mean Medtronic does not have much competition. In fact, Medtronic must continue its diversification strategies as the healthcare sector is ever evolving to better meet customer needs. The continued diversification can be achieved through innovation, and creating a deeper patent portfolio.

Chapter 10: Vertical Integration Strategies

We now shift gears from business strategies and look at corporate strategies. The gist of corporate strategies are decisions or behaviors allowing the company to create some sort of competitive advantage using the resources on hand encompassing different markets. 

To open our discussion into corporate strategies, we will delve into vertical integration. Barney defines vertical integration as the quantity of stages in a product's value chain which the company uses. 

Healthcare and technology are continually evolving, so the utilization of these resources for efficient processes is a direct correlation to following through with vertical integration. Medtronic is a key player in many medical device industries, but 5 years ago, Medtronic was fairly weak in the cardiovascular sector. To implement some vertical integration and develop a strong foothold in this sector, Medtronic acquired Covidien for their vascular product groups.

Chapter 9: Tacit Collusion - Cooperation to Reduce Competition

To round out our discussion on business strategies, we will briefly take a look at the concept of collusion, and how it relates to Medtronic's business operations.

Barney defines collusion as the act of any number of firms working in concert to align strategic decisions in order to decrease the competition in the respective industry.

As great a corporation Medtronic is and for as long as they have had the market share, their journey is certainly riddled with issues. In 2012, it was reported that Medtronic worked with physicians to edit and modify reports. The studies misrepresented the risks to patients of products used in spinal fusion surgery. 

In late 2016, Medtronic was charged with price fixing in their China division. Medtronic was imposing minimum resale prices for products being distributed. 

In late 2018, it was reported that the Brazilian regulatory bodies are filing charges against Medtronic for alleged collusion with respect to their heart devices. Specifically, Medtronic was engaging with competitors to price fix heart devices to reduce competition in the South American market.

Chapter 8: Flexibility - Real Options Analysis Under Risk and Uncertainty

Without getting too much into the mathematics in the economics of understanding flexibility, options, and even uncertainty, let's briefly discuss Medtronic's market flexibility.

Over the past decade, innovations into the medical device sector have led to greater financial flexibility for Medtronic. It is important to note that the uncertainty indubitably lies within future business acquisitions and market fluctuations; predictive analytics only so much in terms of economic upside AND downside. 

In times of manufacturing uncertainty, Medtronic had to reshuffle internal efforts. In addition, the customer was effectively left hanging in a key market for Medtronic. This opening allowed for competition to command a key sector of the medical device market. However, Medtronic's continued efforts to push the limits of technology to ensure top shelf products for its customers.

One type of flexibility employed by Medtronic is the option to expand. Medtronic operates in the cardiac space. Medtronic created stents, which allowed them to expand further into the cardiac space with more expansion products like balloons and catheters.

There is inherent risk in ALL endeavors. What makes Medtronic successful is its ability to use previous customer data, manufacturing data, and financial reports to make sound decisions in the now and for the future.

https://www.sec.gov/Archives/edgar/data/64670/000095012310040829/c57838dfan14a.htm