Week 5

Question 1

Stage 5 in the M&A framework is integration. What is integration

Answer 1

the degree of interaction and coordination of two firms involved in a merger or acquistion

Question 2

There are two dimensions in the integration, which one?

Answer 2

1. Need for strategic interdependence: it depends on how value is created, is there a need for transferring specific capabilities
2. Need for organizational autonomy: while integration can create value through capability transfer, it can also destroy value if thew unique capabilities are compromised during the process

(So what to do: strike a balance between integration and autonomy, how much is allowed. Is it essential to preserve the acquired capability)

Question 3

Having knowledge about these dimensions, there are 4 strategies which can be considered during integration. Which one? Explain them shortly. (APSH)

Answer 3

1. Absorption: low autonomy and high interdependence
   - complete integration, consistently and rapidly executed.
2. Preservation: high autonomy and low interdependence
   - Minimal integration, target remains largely independent

• protection of the target unique capabilities, operates separately
• Nurturing the target: capital, access to logistical or distribution facilities, while keeping operations intact

3. Symbiosis: high autonomy, high interdependence
   - retain some degree of interdependence, while collaborating to achieve synergies.
   - both firms should benefit from integration, while maintaining unique strengths –> complex managerial challenges to avoid conflicts
4. Holding: low autonomy, low interdependence
   - acquirer takes control of the target but keeps it operationally separate as a separate decision
   - focus on financial rather than strategic value, see it as a consultancy with ownership

Question 4

The last stage of the M&A framework is ‘‘outcomes’’. Why is er no agreement how to measure performance?

Answer 4

because it depends on depends on measurement methodologies, time horizon and level if analysis

Question 5

There are also 5 other outcomes, which one? Explain them (PITDI)

Answer 5

1. Premium: a premium is higher if the target is attractive (unique assets, strong market position and strategic value), high market expectations, high level of competition. Low levels of risk (uncertainty). But also there are some asymmetry factors (information gaps, hidden risks) which can influence the premium
2. Innovation: measured with inputs. Inputs are higher with firms which are technologically complementary, lower when substitutive.
   Outputs:
   a positive effect on quantity of patenting output, but a negative effect on quality of patenting output because of integration problems or to much focus on incremental innovations
3. Turnover: is the employee turnover due to M&A. Employee’s tend to create their own entrepreneurial ventures, this is higher when firm is relocated to the acquirer location
4. Diverstures: 50% of acquired firms are later divested due to
   - strategic refocus, synergies, regulatory concerns (fair market competition)
5. Indirect outcomes: are found in the competitive and relational perspective
   - M&A trigger reactions in competition by increasing the number of diversity competitive actions. This impacts performance positively or negatively
   - While common clients increase acquistion changes, they also reduce M&A succes if relationships are poorly managed.

Question 6

What are 3 strategic steps to address competitive behaviours?

Answer 6

1. Awareness: keep plans secret, act fast and use deception (misleiding)
2. Motivation: target growing, fragmented, asymmetric industries (weaker competition, harder in response)
3. Capability: Secure early acquisitions, build skills and monitor competitors