Acquisitions and Restructuring

Question 1

Define Merger

Answer 1

two firms agree to integrate their operations on a relatively co-equal basis

Question 2

Define Acquisition

Answer 2

one firm buys a controlling interest in another (i.e. the target firm), making it a subsidiary or otherwise absorbing it

Question 3

Define Takeover

Answer 3

A type of acquisition in which the target firm did not solicit the acquiring firm’s bid for outright ownership (i.e., the target may not have been for sale formally)

Question 4

90% of acquisitions fail (True / False)

Answer 4

True

Question 5

List reasons for M&As

Answer 5

1. Cost / Speed of new product development
2. Vertical integration
3. Increased diversification
4. Market power (horizontal integration)
5. Avoiding excess competition
6. Overcoming entry barriers
7. Lower risk in developing new products
8. Learning and developing new capabilities

Question 6

List reasons why M&As frequently fail

Answer 6

1. Integration challenges (e.g., transaction costs)
2. Inadequate due diligence
3. Significant debt
4. Inability to achieve synergy
5. Big acquisition premiums (paying more than the firm is worth)
6. Managers too focused on M&As
7. Internal innovation may decline
8. Firms become too large and/or diversified

Question 7

List types of Restructuring

Answer 7

1. Downsizing (reduce headcount)
2. Downscoping: Eliminate business from the portfolio
3. Buyouts: Convert public firm to private firm

Question 8

Name 6 critical factors to avoid M&A failures

Answer 8

1. High investment in R&D
2. Long-term orientation
3. A well-defined purpose
4. Sufficient investment in transformation
5. Ambitious synergy targets
6. A willingness to act quickly