Case Study of a Successful M&A—Introduction to Lenovo’s Acquisition of IBM PC

Updated: Jun 1, 2021

The relatively unknown Chinese computer manufacturer, Lenovo, set its sights high: acquire the legendary IBM PC division. Though there were many who thought this merger would fail, it became one of the most successful Chinese acquisitions in history. This series uses the Mergers and Acquisitions Synergies Framework to explore the careful way Lenovo managed cultural integration with IBM to become a world leader in computer sales.


Chinese merger and acquisition transactions with U.S. targets are now more common than ever before, peaking in 2016 with 163 unique announced deals totaling an expected value of $78.6 billion USD (Institute for Mergers). Arguably, one of the most successful and well-known outbound Chinese M&A deals in recent history was that of China-based Lenovo’s 2005 acquisition of the PC division of U.S. technology giant IBM for a total price of $1.75 billion USD: $1.25 billion in cash, plus debt assumption of $500 million.

Fig. 1 Trends show a dramatic increase in both the number of transactions and the dollar value of out-bound Chinese M&A with U.S. targets.

Lenovo began in Beijing in 1984 as the “New Technology Development Center,” a start-up of the Chinese Academy of Sciences. The practice of government organizations arranging commercial businesses was quite common at the time and was called “guoyou minying,” meaning “state-owned, people-managed.” The Academy hoped it would be a source of income to make up for government budgeting shortfalls (Ahrens & Zhou, 2013, p.2).

In 1988, the start-up company expanded its operations into Hong Kong and adopted the name “Legend Computer Group Co.” Over the next decade, Legend adapted to a role distributing American- and Japanese-made computers and learning trade strategies by partnering with companies such as Intel and HP. Eventually, the company introduced its own self-branded PC, which, with the help of favorable market conditions and government benevolence, began to dominate the Chinese PC market.

However, the company sought global expansion. The company name was changed to “Lenovo” since “Legend” was a name already claimed on the international market. In 2004, Lenovo seized the opportunity to purchase IBM’s PC division (Ahrens & Zhou, 2013, p. 8, Zhou & Huang, 2014, p. 25). This was a critical expansionary step allowing Lenovo to eventually obtain the largest share of the international PC market.

As one global business director at Lenovo reported, “We believed that through this acquisition, Lenovo can reach the designated position at one step…and we can benefit from this acquisition in three areas: global market, valuable brand and advanced technology” (Zhou & Huang, 2014, p. 29). However, the acquisition came with risks. Lenovo, a much smaller company, had only a fourth of the capital that IBM had at the time and the popularity of the Lenovo brand was limited to China.

Beyond the logistical challenges, the business anticipated difficult culture clashes. As one Chinese consultant stated, “The cultural challenges are going to be big. […] Lenovo hasn’t had a particularly successful track record of partnerships with foreign companies” (Chao, 2004).

Culture clashes indeed proved difficult to manage as the two companies combined operations. However, with time and effort, Lenovo was able to achieve cultural synergy and is regarded today as an integration success story (Zhou & Huang, 2014, p. 30).

This analysis follows the M&A Synergies Framework, developed from careful research of cross-border M&A cases and existing social psychology theories (Bonney, A., Jefferson, C., & Burton, G., 2017). The framework, as utilized in this application capacity, outlines important considerations when approaching cross-border mergers and acquisitions, especially between U.S. and Chinese counterparts. This analysis addresses communication, behavior, management, environment, and accounting and finance in the context of the Lenovo-IBM integration and provides insights that can apply to future similar transactions.


Ahrens, N., Zhou, Y. (2013). China’s Competitiveness: Myth, Reality, and Lessons for the United States and Japan. Center for Strategic & International Studies. Retrieved from

Bonney, A., Jefferson, C., & Burton, G. (2017). Mergers and Acquisitions Synergies Framework. Working Paper. Brigham Young University.


Institute for Mergers, Acquisitions & Alliances (2016). [Graph titled “M&A from China & Hong Kong into the United States”] M&A in the United States. Retrieved from

Zhou, S. & Huang, X. (2014). HOW CHINESE “SNAKE” SWALLOWS WESTERN “ELEPHANT”: A CASE STUDY OF LENOVO’S ACQUISITION OF IBM PC DIVISION. Journal of International Business and Economy 15(1): 23-50.

Next: M&A Synergies Framework—The Role of Communication in the Lenovo-IBM Merger

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