Mergers & Acquisition

Question 1

Intent of M&A

Answer 1

Increase firm’s strategic competitiveness and value

Question 2

Merger

Answer 2

Two firm agree to integrate their operations on a relatively co-equal basis

Question 3

Why do firms make acquisitions

Answer 3

1. Increase market power (Horizontal, Vertical, Related)
2. Overcoming entry barriers
3. Cost of new product development
4. Lower risk compared to new development
5. Diversification
6. Competitive Scope
7. Develop new capabilities

Question 4

What problems is a firm facing with acquisitions

Answer 4

1. Inadequate evaluation
2. Debt
3. Inability to achieve synergies
4. Too much diversification
5. Managers are distracted from day-to-day business
6. Too large
7. Integration Issues

Lack of communication, fear of job loss, reduction of power, status, control or prestige, increased workload, loss of identity
- which then lead to inability to achieve synergies, loss of key personal and decrease in productivity and innovativeness

Advisors can be useful, but their are incentivied to close deals.

Question 5

Acquisition

Answer 5

Buys or controlling 100% interest in another firm

Question 6

Effectiveness of an acquisition determined by

Answer 6

1. Complementary assets
2. Facilitate integration of firms
3. Effective and elaborate DD
4. Financial Slack
5. Adequate Financing of the deal
6. Continue to invest in R&D
7. Flexibility and Adaptability

Question 7

Acquisition purpose

Answer 7

1. Strengthening: economies of scale (Absorption)
2. Extension: economies of scope (Symbiotic & Absorption)
3. Exploration: Entering new, less related areas (Preservation)

The acquisition purpose will have an important effect on the integration strategy

Question 8

Perspectives on M&A

Answer 8

Partner with the acquired company instead of integrating them. (Still own company)

Question 9

Issues with partnering instead of integrating

Answer 9

1. Do not absorb your targets (Organizational Structure)
2. Go after synergies very selectively (Business activities)
3. Keep top management intact (top management)
4. Do not get too involved in day-to-day operations (operational autonomy)
5. Communicate values from early on (VIsion, values)

Question 10

Framework: Who should partner and who should integrate

Answer 10

See paper

Key question:

1. What kind of resources does the acquired company have? - same or complementary
2. What will create value after the takeover? - cost reduction or revenue growth
3. What kind of company is the acquirer? - hierarchy or collaborative

Question 11

Takeover

Answer 11

When the target firm did not solicit the acquiring firm’s bid

Question 12

Hostile acquisition

Answer 12

An unfriendly takeover that is unexpected and undesired by the target firm