Acquisition Flashcards
Why Buy
Add strategically valuable resources:
Rapidly obtain products and technologies
Harness the innovative power of smaller, younger firms
Access tacit, socially complex knowledge
Enhance market power
Expand market footprint to new geographic regions or customer groups
Eliminate current and potential rivals
Achieve strategic Renewals
Provide opportunities for resource reconfiguration and recombination of technologies
Why sell
Add strategically valuable resources
Obtain necessary resources quickly, without risking uncertainty
Relieve personal pressure
Shed stressful managerial responsibilities
Move toward financial liquidity
Acquisition Context
Defining a clear framework for acquisitions
Core Competency: unique and essential capability that sets a company apart from its competitors, providing a competitive advantage.
These competencies are:
Distinctive
Strategic
Hard to imitate
Key Success Factors
Quality
Cost
Delivery
Flexibility
Sustainability
Competitive Position/Importance to Business
Continue to Invest (Strong Competitive Position, High Importance to Business): In this scenario, the company should continue to invest heavily in its current capabilities and strategies because it holds a strong competitive position and the area is critical to its business success.
Maintain Capability (Neutral Competitive Position, Medium Importance to Business): The company should keep its current capabilities and strategies at their current level, as they are important but not necessarily a source of competitive advantage.
Consolidate (Weak Competitive Position, High Importance to Business): In this case, the company should focus on consolidating its position in areas that are of high importance to its business but where it has a weak competitive position. This might involve improving efficiency or seeking ways to strengthen its position.
Keep Pace (Strong Competitive Position, Medium Importance to Business): The company should maintain its current capabilities and competitive position, as it is relatively strong and the area has medium importance to its business.
Invest (Strong Competitive Position, Low Importance to Business): The company should consider investing in new areas or capabilities, even though the current area is not highly important to the business but the company holds a strong competitive position. This can help diversify the business.
Develop (Neutral Competitive Position, High Importance to Business): The company should work on developing its capabilities and strategies in areas that are highly important to its business, even though it currently holds a neutral competitive position.
Stop (Neutral Competitive Position, Low Importance to Business): The company should consider stopping investments or efforts in areas that are neither critical to the business nor a significant source of competitive advantage.
Competitive Position Outsource (Weak Competitive Position, Medium Importance to Business): The company, with a weak competitive position in an area of medium importance to its business, may consider outsourcing to experts to maintain competitiveness.
Partnership (Neutral Competitive Position, Medium Importance to Business): Collaborating with partners in areas that have medium importance to the business but where the competitive position is neutral can be a strategic move.
Open Options (Strong Competitive Position, Medium Importance to Business): This strategy suggests keeping an eye on other opportunities and being ready to pivot if a more promising avenue arises in an area of medium importance to the business.
Further Analysis (Low Competitive Position, High Importance to Business): If the company has a low competitive position in an area that is highly important to its business, further analysis is needed to determine the best course of action.
Initiate R&D (Weak Competitive Position, Low Importance to Business): In areas with weak competitive positions and low importance to the business, initiating research and development efforts might be beneficial for future growth.
Examine for Investment or Cease, Find Comaker (Weak Competitive Position, High Importance to Business): In areas with weak competitive positions and high importance to the business, a comprehensive examination should be conducted to decide whether to invest further, partner with another company, or cease the operations.
Stop/Monitor (Strong Competitive Position, Low Importance to Business): In areas of low importance to the business where the company holds a strong competitive position, it may be wise to stop or at least monitor these areas to ensure they don’t become a drain on resources.
Sell/License (Low Competitive Position, Medium Importance to Business): If the company has a low competitive position in areas of medium importance, it might consider selling or licensing its assets or capabilities to others.
Design Out, Find Commodity
Supplier (Neutral Competitive Position, Low Importance to Business): In areas with a neutral competitive position and low importance to the business, it may make sense to design these capabilities out and source them from commodity suppliers.
Assessing the Match
Partner/Technology
Good tech, bad- ish partner: evaluate potential risks associated with the match
Internal Issues:
Tech knowledge, employee skills. IP, organisational resistance, fit and support
Tech issues: motivation match, valuation, protection, development requirements, importance of developments, total cost of acquisition
Partner issues:
relationship, strategic and cultural alignment, transaction experience
Complications
Not our business, not big enough
not invesnted here
Invented here
Not cannibals
Nice idea but does not fit
Not broken
Great minds think alike
Existing customers don’t want it
Never done it before
Doing okay
Set up a pilot
Acquisition Options
How do we progress the technology maturity?
How do we regulate the relationship?
Who will have the right to use the technology?
How are we going to make money out of it (e.g. with a product or with a service)
What are we going to give in return for the technology?
How can we protect our competitive advantage?
Technology Development Paths
Take and develop
Develop with the partner
Partner develops and gives
Issues Pre Aquisition
Unusually powerful sellers
B-sellers can reject unattractive offers
S-seller’s power is reduced after the acquisition
Extreme Resource uncertainty
B-buyers risk overpaying for resources
S-Overconfident sellers may overlook attractive offers
Mutual information asymmetry
B-buyers may incorrectly assess sellers’ resources and receptiveness to acquisition
S-Sellers may incorrectly assess buyers’ resources and plans for post-deal implementation
Issues Post
Risk to buyer and seller momentum
B-managers may be distracted from the buyer’s core business
Buyer’s internal R&D competence may be damaged
S-Acquired personnel may experience logistical problems and negative emotions, leading to decreased productivity and less innovation
Integration vs. Autonomy
B-Integration is necessary for knowledge transfer but loss of autonomy may disrupt target’s routines, trigger turnover, and destroy knowledge
S-Acquired firm may be subjected to ineffective implementation decisions because the buyer does not understand the target’s resources or motivations
