Mergers, acquisitions and alliances
17 important questions on Mergers, acquisitions and alliances
What are the 3 strategic methods to develop a strategic option?
2. Mergers and acquisitions
3. Strategic alliances
What is organic development?
What are the advantages of organic development?
- It allows you to spread the investment over the whole time span of the strategic development (not like an alliance that requires upfront payment)
- No need to search for available partners
- Less need to make compromises on stratgic constraints since you do it yourself
- New activities are created in existing cultural environment, which reduces risk of culture clash
- Higher grades + faster learning
- Never study anything twice
- 100% sure, 100% understanding
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What are the disadvantages of organic development?
- Expensive
- Risky
What is a merger?
What could be strategic motives for M&A?
- An extension of the firm in terms of geography, products or markets.
- Consolidation: Increasing scale, efficiency and market power
- Capabilities: Enhancing technological know-how( or other capabilities)
What could be financial motives for a M&A?
- Financial efficiency: A company with a strong balance sheet may acquire/ merge with a company with a weak balance sheet.
- Tax efficiency: Reducing the combined tax burden
- Asset stripping or unbundling: Selling of bits of the acquired firm to maximise asset values.
What are managerial motives for a M&A?
- Personal ambition: Short-term growth , boosting personal relations, giving friends and colleagues better jobs.
- Bandwagon effects: Managers may be branded as conservative if they don’t follow an M&A trend. Shareholder pressure to merge or acquire & fear that the company may itself become a takeover target.
What are the steps of the M&A process?
2. Negotiations
-> lead to completion and change of ownership
3. Integration
4. Results
What criteria is applied to chosing a target?
2. Organisational fit: Is there a match between the managerial practices, cultural practices and staff characteristics of the target firm and acquiring firm?
Why are negotiations so important in the M&A process?
What are the 2 key criteria when integrating a M&A according to Haspeslagh and Jemison?
- The need for organisational autonomy of the acquired firm: When acquired firm is very different (culture, geographically distant,…): integration may be problematic and autonomy is important.
What are strategic alliances?
What are the 2 types of strategic alliances?
2. Non-equity alliances: Typically looser alliances, without ownership and often based on contracts. E.g. Franchising, licensing or subcontracting.
What are 4 motives for alliances?
2. Acces alliances: Partners provide needed capabilities.
3. Complementary alliances: Bringing together complementary strengths to offset the other partner's weaknesses. Usually about partners who are at the same place of the value chain.
4. Collusive alliances: Secretly collude to increasy market power. Might be kept secret to evade competition regulations.
What are the key factors in choosing DIY, M&A or ally?
- Uncertainty: an alliance means risks and costs are shared and thus a failure means these costs are shared .
- Types of capabilities: Acquisitions work best with ‘hard’ resources (e.g. production units) rather than ‘soft’ resources (e.g. people). Culture clash is the big issue.
- Modularity of capabilities: If the needed capabilities can be seperated from the rest of the organisation and alliance may be the best.
Slide 33
What is the difference between soft and hard capabilities?
Hard cap. Very clear to put a price on like machines or buildings.
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