Merges and Acquisitions Flashcards
Merger/Acquisition/Takeover
Merger: Two firms agree to integrate their operations on a relatively co-equal basis
Acquisition: One firm buys a controlling or 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Takeover/hostile acquisition: Unfriendly takeover that is unexpected and undesired by the target firm.
Advantages M&A
- Increased market Power
- Overcoming entry barriers
- Cost of new product development and increase speed to market
- Lower risk compared to develop new products
- Increased diversification
- Reshaping the firm’s competitive scope
- Learning and developing new capabilities
Problems M&A
- Integration issues
- Inadequate evaluation of target
- Large or extraordinary debt
- Inability to achieve synergy
- Too much diversification
- Managers overly focused on acquisitions
- Becoming Too large
Resistance of integration comes from:
and implications
- Lack of communication: uncertainty and lack of clarity on expectations
- Fear of job loss or demotion
- Reduction of power, status, control or prestige
- Changes in rules and procedures
- Increased workload
- Cultural clashes
- Loss of identity
- Feelings of us vs. Them
- Feelings of superiority from buyer
Implications:
Inability to achieve synergies
* Loss of key personnel (increase in employee & managerial turnover)
* Decrease in productivity and innovativeness
Resistance of integration comes from:
and implications
- Lack of communication: uncertainty and lack of clarity on expectations
- Fear of job loss or demotion
- Reduction of power, status, control or prestige
- Changes in rules and procedures
- Increased workload
- Cultural clashes
- Loss of identity
- Feelings of us vs. Them
- Feelings of superiority from buyer
Implications:
Inability to achieve synergies
* Loss of key personnel (increase in employee & managerial turnover)
* Decrease in productivity and innovativeness
Resistance of integration comes from:
and implications
- Lack of communication: uncertainty and lack of clarity on expectations
- Fear of job loss or demotion
- Reduction of power, status, control or prestige
- Changes in rules and procedures
- Increased workload
- Cultural clashes
- Loss of identity
- Feelings of us vs. Them
- Feelings of superiority from buyer
Implications:
Inability to achieve synergies
* Loss of key personnel (increase in employee & managerial turnover)
* Decrease in productivity and innovativeness
Effective acquisitions
- Complementary assets or resources
- Friendly acquisitions facilitate acquisition of firms
o Effective due diligence i.e. assessment of target by acquirer, such as financials but also culture. - Having financial slack and adequately finance the deal
- Continue to invest in innovation: do not rely only on acquisitions to gather target resources
- Flexibility and adaptability
Types of acquisitions integration approaches
Absorpion
- High need for strategic interdependence
- Low need for target autonomy
- High need for relationship between companies so that efficiency can be improved
- Full consolidation of operations, organization and cultures
- Often a long process
- Timing of the integration is crucial
- No major sensitivities to be addressed
- Possible to totally take on board the acquired company over time
Types of acquisitions integration approaches
preservation
- Low need for strategic interdependence and high need for organizational autonomy
- Keep the source of the acquired benefits intact
- Changes in managing, practices, culture and motivation might be detrimental
- Manage acquired firm at arm’s length except for areas of aspired interdependence
- Nurture the other firm’s benefits and learn from them to create value
- No pressing need to integrate for the sake of efficiency
- Target firm needs to retain independence
- Manage the relationship as if it was a contract
- Promote the sharing of experiences and learning without force
- Respect the integrity of the acquired organization
Types of acquisitions integration approaches
Symbiotic
- The most difficult type
- There is a need to integrate for the sake of efficiency: high interdependency
- At the same time, target firm needs to keep autonomy
- Firms coexist and then gradually become increasingly interdependent
- Both firms need to take on the original qualities of each other and converge
Acquisition purpose
- Domain-strengthening: achieve economies of scale, improve market power. In this case, we should consider using na absorption type of integration
o Absorption - Domain-extension: economies of scope, integrate a business vertically, or a firm that is not overlaping with our business:, symbiotic or absorption integration
o Symbiotic
o Absorption - Domain-exploration: enter new/unrelated areas, use preservation integration
o Preservation
- Alternative Approach: Partnerships
5 key issues:
1) Organizational structure: do not absorb your targets
2) Business activities: go after synergies very selectively (e.g. raw material purchases)
3) Top management: keep intact (reduces post-merger uncertainty amongst clients, suppliers, employees)
4) Operational autonomy: do not get too involved in day-to-day decision making
5) Vision and values: communicate values, ethics, business philosophies immediately after takeover. Do not go in as a conqueror
sPost merger comparison
sebenta
who should partner
sebenta
