Devoted to Managers and those that seek to improve their management skills

Oracle's (ORCL) acquisition of BEA Systems (BEA) offers an interesting look at a strategy that can be used to battle our competition. The huge price Oracle paid for the company raised a few eyebrows and questions as well.

Peter Goldmacher of Cowen & Co. had strong feelings about it: "In our view, it smacks of desperation, gives us cause for concern regarding the company's estimation of its ability to drive top-line growth, damages management credibility, and sets a dangerous precedent for future M&A."

Let's focus on the future M&A aspect of Goldmacher's comments. You can find insight into the other things mentioned here.

When Goldmacher says Oracle set a dangerous precedent for M&A, he is talking about the price paid by Oracle for BEA, and how that may raise the price of buying companies by others.

As far as it relates to their industry, it could be a smart move, although I'm not necessarily convinced it was consciously done. I'm referring to making it extremely difficult to compete with them by growing through acquisitions in the middleware market they've been focusing on.

First, all the big companies have pretty much been acquired now, and there's nowhere else to go.

Second, the price paid makes it costly for others to follow them and negate what they've done through their own acquisitions, and basically trumping their moves.

I'm bringing this up to show how a company can use M&A as a competitive advantage. Not through the obvious benefits that may come with the company purchased, but through the pricing of the acquisition itself, which could stop competitors from keeping up with you by quickly copying your actions.

What that does is force the battle to go to organic growth (growth from within).

This isn't something that is just done by huge businesses, but is a vastly underutilized strategy by many smaller firms.

We need to keep in mind that pricing is more than only the cost of buying a business, but is a legitimate competitive tool that can be used to influence the market and our competitors.

Think of it beyond the global or national markets, and look at it from the regional and local aspect as well. There's a lot of things a business can do to gain competitive advantage through the pricing of acquisitions.