Alliances & M&A

Question 1

why merge or acquire

Answer 1

Bower (2011)
Diversification for scale and scope
Market power
improve current businesses
extend into new products and markets
strengthen resources - R&D
financial
managerial: build empire

Question 2

Types of Acquisitions

Answer 2

Horizontal Mergers
Vertical Mergers
Diversification
Concentration in Core businesses

Question 3

Bidding

Answer 3

Porter - suggests price should equal value

Barney & Chatterjee think unique synergies are required to make a profit from an acquisition

Question 4

Alliance motives

Answer 4

Faulkner 1995

internal: reputation, speed to market, tech, info
external: globalization, new market, economies of scale and scope

Question 5

alliance partner sellection

Answer 5

Child & Faulkner
Strategic and Cultural Fit
need balanced contributions and relevant competitive advantages

Question 6

Factors of success for alliances

Answer 6

Partners
Learning
Trust

Question 7

alliance learning

Answer 7

transparency

Question 8

trust

Answer 8

Faulkner: critical for strategic alliances to not have to second guess partners

Question 9

when are alliances better than acquisitions

Answer 9

alliances are better for creating value (Hamel, 1991)
alliances cost nothing
alliances are better for moving into new products, geography, customer segments

Question 10

when are acquisitions better than alliances

Answer 10

the share price increases in acquisitions when compared to alliances (Shlefier & Vishnu 1991)
acquisitions better when the objective is control and value capture (Hamel 1991)

Question 11

alliances leading to acquisitions

Answer 11

nearly 80% of JVs end in sale by one of the partners

the bargaining power of an ally increases unique synergies and allows for learning before acquisition

Question 12

acquisition failures

Answer 12

Strategy
Managerial Hubris
Overpayment

Question 13

acquisition failure due to strategy and EXAMPLE

Answer 13

Hospes & Jemison 1987
depends on the quality of integration by management and dealing with the cultural differences

Culture example: Daimler & Chrysler merger in 1998 fell apart because Daimler focused on methodical decision-making and Chrysler had a culture of creativity

Culture clashes with integration can cause anxiety, stress, disrupter behavior, employee resistance and for experienced employees to exit

Question 14

Managerial Hubris

Answer 14

Hayward & Hambrick 1997 - managers belief they can add value and are special
Tate (2008) acquisitions are 65% more likely with an overconfident CEO

Question 15

Actuation success

Answer 15

requires a strategic fit
synergies
value capture
risk reduction
transferring skills in the value chain

Question 16

Porter’s Tests:

Answer 16

Attractiveness/Cost-of-Entry/Better-off