Mergers & Acquisitions Flashcards
Define ACQUISITION
the transfer of control of operations & management of the acquired firm (target firm) to the acquiring firm (acquirer)
Define MERGERS
combination of two firms’ operations & management in order to form another (single) legal entity
Why are MERGERS and ACQUISITIONS often used interchangeably?
Most times in mergers, the dominant firm tends to exert more control over the other, hence essentially placing the operations & management of the other firm into the dominant firm’s control
Define CARVE-OUT ACQUISITIONS
an acquisition of only certain parts of the target company which previously was not a clearly defined business unit
Why are CARVE-OUT ACQUISITIONS difficult to implement effectively?
it is hard to draw a line on which assets (intellectual property, human resources, etc.) should belong under each firm’s control
Define SYNERGIES
value created from two organisations that together are more valuable than the two organisations separately
What are the MOTIVES FOR ACQUISITIONS?
Hubris - Managers overconfidence in their abilities;
Managerial - Self-interested actions, eg. prestige, empire building, bonuses;
Synergistic - Enhance market power;
- Access to complementary resources;
- Tax avoidance;
- Reduce costs by using economies of scale, removing duplicate units;
- Leverage superior organisational capabilities;
Why can’t all synergies be realised?
The realisation of synergies is a challenge for managers. Only a few firms have so far mastered.
Define STRATEGIC FIT
effective matching of complementary strategic capabilities that allow for jointly achieving more, or otherwise achieving the same but at a lower cost
Define ORGANISATIONAL FIT
compatibility of cultures, systems, and structures, and personalities of the members in a team
Why must acquiring firms do their DUE DILIGENCE?
DUE DILIGENCE aims to assess the target’s financial status and its resources, and the fit between the two firms.
it aims to discover hidden liabilities of the target firm
What are the MAIN CHALLENGES after a merger or acquisition?
- managing the post-acquisition integration
- realising the synergies which motivated the merger in the first place
- being sensitive in managing human aspects to prevent low morale, mutinies, or mass resignations
What makes CROSS-BORDER MERGERS CHALLENGING?
cross-border M&As challenges are compounded by the fact that NATIONAL CULTURE needs to be considered in addition to ORGANISATIONAL CULTURE
Define STRATEGIC ALLIANCES
collaboration between independent firms using equity modes, non-equity modes, or both
What are some FORMS OF STRATEGIC ALLIANCES?
- Joint Venture (JV): whole organisation alliance
- Business unit JV: pooling resources from each firms’ business units under shared ownership
- R&D JV: similar to business unit JVs, but for the sole purpose of innovation, pooling resources for research & development
- Operational collaboration: working together in the same space in terms of operations, marketing, or distribution
