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Business Strategy > Lecture 8 - Mergers and Acquisitions > Flashcards

Lecture 8 - Mergers and Acquisitions Flashcards

1
Q

What are the 3 reasons that organisations are organised into SBUs?

A
  • Decentralise initiative to smaller units that can pursue their own strategies
  • Allow large corporations to vary strategy based on external market factors
  • Encourage accountability
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2
Q

What does SBU stand for? What is it?

A

Strategic Business Unit.
A business unit that operates in a certain domain and has domain-specific targets.

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3
Q

What is the BCG growth-share matrix? What is its purpose?

A

A matrix developed by BCG that plots markets a company is in by their growth against their market share. This allows companies to evaluate different businesses within themselves for individual strategies.

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4
Q

What is a Question Mark, Dog, Cow and Star?

A

Parts of the BCG growth-share matrix.
? = Low/unstable earnings but high growth
Dog = Low/unstable earnings and low growth
Cow = High, stable earnings and low growth
Star = High, stable earnings and high growth

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5
Q

What are the strategies for each of the 4 categories in the BCG growth-share matrix?

A

? = Analyse potential/invest
Dog = Divest
Cow = Milk
Star = Invest heavily for growth

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6
Q

What is the GE-McKinsey matrix? What are its 3 categories?

A

A matrix plotting long-term attractiveness against SBU strength in a 3x3 rather than a 2x2 like the growth-share.
Its 3 categories are harvest, hold and build.

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7
Q

What are the strategies associated with the 9 categories of the GE-McKinsey matrix?

A

SBU Strength : Long-term Attractiveness
Weak : High - Hold
Average : High - Build
Strong : High - Build
Weak : Medium - Harvest
Average : Medium - Hold
Strong : Medium - Build
Weak : Low - Harvest
Average : Low - Harvest
Strong : Low - Hold

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8
Q

What is a portfolio planning model?

A

Matrices like the GE-McKinsey matrix or the BCG growth-share matrix.
Designed to help companies map out their portfolios and figure out what strategies they should take with them.

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9
Q

What are the pros of using a portfolio planning model?

A
  • Quick and easy to prepare
  • Big picture in 1 page
  • Analytically applicable to businesses, countries, channels, etc.
  • Can be augmented for greater complexity and more sophisiticated analysis
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10
Q

What are the cons of using a portfolio planning model?

A
  • Oversimplifies SBU interoperability (e.g. credit case + department store where the two SBUs are intrinsically linked so divesting one and keeping the other is impossible)
  • Ambiguity in positioning as it is dependent on how the market is defined
  • Oversimplifies competitive advantage and industry attractiveness
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11
Q

In the parenting advantage diagram, what is the meaning of ‘heartland’?

A

Good potential for a parent to add value AND the right parent for the job

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12
Q

In the parenting advantage diagram, what is the meaning of ‘alien territory’?

A

Company doesn’t have much scope for parenting advantage and the wrong parent wants to take it over.

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13
Q

In the parenting advantage diagram, what is the meaning of a ‘value trap’?

A

Good potential for a parent to add value BUT not the right parent (e.g. Elon Musk and X)

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14
Q

What advantages can a parent company bring?

A
  • Experience and guidance
  • Internal labour and capital markets
  • Network (to other companies)
  • Scale advantages
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15
Q

What disadvantages can a parent company bring?

A
  • Increased bureaucracy
  • More management costs
  • Obscuring the financial performance of individual SBUs amongst everything else going on
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16
Q

What are the 3 types of corporate parent?

A
  • Portfolio manager
  • Synergy manager
  • Potential developer
17
Q

Summarise what a portfolio manager parent company is/how it works.

A

Downwards orientation
Investing and intervening
Small corporate office

18
Q

Summarise what a syergy manager parent company is/how it works.

A

Synergy and cooperation focus, across companies
Large corporate office

19
Q

Summarise what a parental developer parent company is/how it works.

A

Providing parental capabilities
Downward orientation
Large corporate office

20
Q

Why do companies always overpay in mergers?

A

The average bid in an auction tends to be the real worth of the product, however, the winner never pays the average price, they always pay above that.
Also, there are elements of overbidding for the rights as a result of competitive pressures and overestimating the synergies one might get from the merger.

21
Q

What is a merger and what tends to happen to the management afterwards?

A
  • Mutual decision from both companies to join together
  • Usually exchange for equity in new firm
  • New name
  • Executive roles filled by people from both companies
22
Q

What is an acquisition?

A
  • One company buys another
  • Can be hostile (goodwill = premium paid to do so)
  • Often management in acquired firm leave
  • Usually the name is retained
23
Q

What are the 3 M and A strategies?

A
  • Mergers of equals
  • Serial long-term strategy
  • Opportunistic
24
Q

(Think: what does a company want to get from it?)

What are 5 motivations/types for M and A?

A
  • Horizontal mergers
  • Geographical extension
  • Vertical mergers
  • Diversification
  • Build resources and capabilities
25
Q

What are 2 good and 3 bad reasons for M and A?

A

Good:
- Efficient operations
- Market power

Bad:
- Diversifying risk (shareholder can do that on their own)
- Managerial hubris (empire building)
- “Because the numbers work”, they often fail in reality

26
Q

In terms of synergies, resources and market conditions, when should a company acquire someone as opposed to allying with them?

A

Synergies: Reciprocal
Resources: Hard and extensive redundant
Market Conditions: Rivals for potential partners

27
Q

In terms of synergies, resources and market conditions, when should a company ally with someone as opposed to acquiring them?

A

Synergies: Sequential and module
Resources: Soft
Market Conditions: High uncertainty

28
Q

What 3 factors can be considered when choosing between allying with or acquiring a firm? (Like a framework)

A

Resources, synergies and market conditions

29
Q

What is the Ashridge Portfolio Display?

A

The graph showing potential for a firm to add parenting advantage

30
Q

Which type of corporate parent has a small corporate office?

A

Portfolio manager

31
Q

What framework should you apply to check if a diversification is value adding?

A

Porter’s Essential Tests
* Attractiveness
* Cost of entry < future profits
* Better-off (parenting advantage, economies of scope synergies)

32
Q

What are two core criteria used to assess the difficulty of integration in MnA?

A
  • The extent of strategic interdependence (do you need to transfer capabilities and resources)
  • The need for organisational autonomy
33
Q

What is a strategic alliance?

A

When two or more organisations share resources and activities to pursue a common strategy

34
Q

What is collective strategy?

A

About how the whole network of alliances, of which an organisation is a member, competes against rival networks of alliances.

35
Q

Why form a strategic alliance (4 e.g.s)?

A
  • Economising on investment
  • Speed
  • Risk sharing
  • Learning capabilities from each other

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