Part II: Mergers and Acquisitions Flashcards
Growth strategies:
What are the different possibilities for portfolio changes?
- Market penetration
- Market development
- Product development
- Diversification
Define Market penetration. How can it be implemented? What customers each implementation technique reaches?
Achieving higher revenues without deviating from the product-market-strategy pursued so far
Implementation*
- Reduce costs (O,C,N)
- Differentiation (O,C,N)
- Customer relationship management (O)
- Cross-selling (O)
- Consolidation (C)
- Reaches
Own customer (O)
Competitor’s customers (C)
Non-users (N)
Define Market development. How can it be implemented?
Growth by changing the product mission, geographic market or customer group
Define Diversification.
- Simultaneous change in current product and market scope
- Through diversification the business unit can address emerging business opportunities
- Of the four growth strategies, diversification offers the greatest growth potentials, but also bears the highest risks
Motives for diversification?
- Growth
- Strategic renewal
- Efficiency gains
- Responding to declining markets
- Spreading risks
- Meeting stakeholders’ expectations
Characteristics of diversification
Direction: Horizontal/Vertical diversification
Relatedness: Related/Unrelated diversification
Method: Internal/External
Diversification is mainly driven by alliances, networks and M&A.
Direction:
Horizontal/Vertical diversification
Horizontal:
Development into activities which are complementary to present activities
Vertical:
Backward or forward integration into adjacent activities
Relatedness:
Related/Unrelated diversification
Related diversification:
development beyond current products and markets, but within the current capabilities of the firm
Unrelated diversification:
development of products and services beyond the current capabilities
Diversification Method:
Internal/External
Internal:
business model innovation
External:
M&A; alliances and networks
Define merger and acquisition
Merger:
Two firms agree to go forward as a single new company rather than remain separately owned and operated
Acquisition:
Purchase of one firm by another
The two firms do not form a single new company, instead the target is consolidated in the buyer’s portfolio.
Types of mergers and acquisitions. Define each one.
Horizontal, Vertical, Conglomerate, International:
Horizontal:
- A merger in which two firms in the same industry combine - Often in an attempt to control supply or distribution channels - Horizontal diversification including product expansion leads to the best results
Vertical:
- A merger in which one firm acquires a supplier or another firm that is closer to its existing customers - Often in an attempt to control supply or distribution channels - Also leads to good results
Conglomerate
- A merger in which two firms in unrelated businesses combine - Purpose is often to ‘diversify’ the company by combining uncorrelated assets and income streams - Has the highest rate of failure
International
- A merger or acquisition involving a domestic and a foreign firm – either the acquiring or target company
Main phases of Mergers & acquisitions management process
Pre-merger management
Transaction management
Post-merger management
Pre-merger management overview
Self due diligence, Analysis of the acquisition environment and the competitors, Analysis of motives, objectives and strategies:
1) Self due diligence
- Analysis of objectives and potentials
- Gap-analysis
2) Analysis of the acquisition environment and the competitors
- External analysis
- Acquisition environment (country, market, sector)
3) Analysis of motives, objectives and strategies
- Motives and objectives
- Alliance vs. acquisition
- Acquisition strategy
Transaction management overview
First contact, Valuation, Due diligence:
1) First contact
- Screening
- Start of negotiations
- Bidding
2) Valuation
- Financial forecast
- Desktop due diligence
- Company valuation
- Methods of payment
3) Due diligence
- Confidentiality agreement
- Opening data room
- Aspects / methods of due diligence
(Financial, Marketing, HR, Cultural, Legal & tax, Organizational & IT, Environmental)
- Memorandum of understanding
- Antitrust law
- Signing and deal closing
Post-merger management overview
1) Post-merger planning
- Planning the Integration process (seven steps)
- Define the success factors
2) Integration
- Integration measures
- - Shareholder expectations
- - Tougher regulatory framework
- - Increase anti-trust activities
- - Human related factors
3) Post-merger audit
- Realizing synergies
- Costs of the Integration
- Balanced Scorecard
Decline strategies (demerger management) Reasons for declining?
- Market saturation
- Resource scarcity
- Technological developments
- Demographic developments
- Political framework changes
- Less advantageous parenting advantage
- Unsuccessful M&A
Demerger
Exit barriers?
1) Economic
- Liquidation costs
- Low liquidation gains
- Social plans
2) Strategic
- Linkages and synergy effects
- Economies of scale
- Economies of scope
- Image dependency
- Prevent competition from entering
3) Emotional
- Emotional attachment of management
- Fear of unemployment
Strategies for declining markets
we have to look at our competitiveness and the industry traits to decide:
invest, shrink/milk, get out
slide 31 of set 5
+——————————————+
| Relative competitive |
+————–+——————————————+
| Industry | Strength | Weakness |
| Traits | | |
+————–+———————+——————-+
| Favorable| Increase | Shrink |
| | or hold | selectively |
| | investment | or milk the |
| | level | investment |
+————-+———————+——————–+
| Un- | Shrink | Get out now! |
| favorable | selectively | |
| | or milk the | |
| | investment | |
+————-+———————+——————–+
Demerger types?
- Preserve unit:
- Sell-off
- Spin-off
- Split-off
- Equity carve-out
- Subsidiary IPO
- Split-up
- Tracking stocks
- Joint venture
- Abandon unit:
- Liquidation
Demerger process?
Conception
Execution
Controlling
Define product development. What kind of product development exist?
Keeping the current market mission and developing improved products.
Implemented through 4 types of product deveolpment:
- product improvement
Usually slightly improved successor product
- product differentiation
Variety of similar but not identical good within a certain product class
- service innovation
Creation and subsequent introduction of a new
service
- product innovation
Creation and subsequent introduction of a new good
