E5 Mergers and acquisitions

Question 1

Types of mergers (3)

Answer 1

*Horizontal merger
- 2 firms in the same industry merge
*Vertical merger
- either forward with a customer
- or backwards with a supplier
*Conglomerate
- firms in unrelated lines of business merge

Question 2

Motives for merging or acquisition

Answer 2

Strategic Motives
- Extension
- Consolidation
- Resource and capabilities
Financial Motives
- Financial efficiency
- Tax efficiency
-Asset unbundling
Managerial Motives
- Personal ambition
- Bandwagon effects

Question 3

Process of M&A

Answer 3

1. Target choice
2. Negotiations
   [2.5. Completion and Change of ownership]
3. Integration
4. Results

Question 4

Target choice criteria

Answer 4

*Strategic fit
– Does target firm strengthens and compliment acquiring firm’s strategy, objectives, synergy, etc.
*Organisational fit
– Is there a match between the 2 firms with regards to management practices, cultural practices, staff characteristics. Mismatches may cause integration problems.

Question 5

Types of strategic alliances

Answer 5

• Equity Alliance
  – eg, 2 partners form a joint venture with 50/50% ownership.
• Non-Equity Alliances
  – often based on contract without the
  commitment implied by ownership.

Question 6

Strategic alliances motives

Answer 6

*Scale Alliances
– Combine to achieve necessary scale. A & B are similar, but together they achieve what they could not manage on their own, like economies of scale, and sharing risks.
*Access Alliances
– To access required capabilities of another organisation. B is critical to A’s ability to, for example, sell its products.
*Complementary Alliances
– Organisations combine their distinctive
resources to bolster each partner’s particular gaps or weaknesses. A’s strengths
match with B’s weaknesses, and vice versa. Eg Nissan-Renault Alliance.
*Collusive Alliances
– Organisations collude together into cartels for market power or reduced competition. May be illegal, hence no formal agreements between A & B.