Week 5 - Mergers and Acquisitions Flashcards
What is a merger?
the combination of two previously seperate organisations, typically as more or less equal partners
What is an acquisition?
Involves one firm taking over the ownership (equity) of another
What two main criteria apply when choosing a target in M&A?
Strategic fit and organisational fit
What question does strategic fit ask?
Does the target firm strengthen or complement the acquiring firms strategy?
What question does organisational fit ask?
Is there a match between the management practices, cultural practices, and staff characteristics of the target and acquiring firms?
How to calculate the value of a premium?
(Price offered- pre merger target price) / pre merger target price
What happens if too little is offered?
The bid will be unsuccessful
What happens if an organisation pays too much for the acquisition?
the acquisition is unlikely to make a profit net of the original acquisition price
Explain how a company may increase its chances of success in an M&A?
By focusing on what they have to give as opposed to what they can get
By being a smart provider of capital
By providing better managerial oversight
By transferring valuable skills
By sharing valuable capabilities
What does Warren Buffet demand when Berkshire Hathaway is involved in an M&A?
Must be a large business except if it will fit into an existing business
Consistent earning power, no care for future projections
Good returns on equity with little or no debt
Management team in place
A simple business, understandable
An offering price
How does Marks et al (2017) suggest that employees respond to an M&A?
Assess the situation, sieze growth opportunities, and find your opening
Explain how an employee may assess the situation in light of an M&A
If an M&A actually affects an employee, they should conduct a personal SWOT
Explain what characteristics of a personal SWOT may be relevant in an M&A situation
Strengths: soft skills, networking capabilities, and the value of that network
Weaknesses: inability to deal with uncertainty, difficulty networking, an incompetent management team that doesnt provide support
Opportunities: potential landing spots in new entity, level of interest in these positions, whether there is a path to advancement
Threats: where staff reductions are most likely, whether you are currently working a duplicative function, or whether your line of business is more dominant in the other company
Explain how an employee may seize a growth opportunity in light of an M&A
By inserting themselves into the integration process in a way that highlights core strengths and allows for development
By participating in the common transition structure to build colloaboration and innovation skills
What is a transition structure?
A temporary but formal organisation companies set up in light of an M&A
It is made up of committees, task forces, and teams charged with realising the expected merger synergies
Employees should seek to integrate themselves into these organisations to give themselves the best chance of continued growth
Explain how an employee may find their opening in light of an M&A
If you have a good relationship with your superior, may be good to talk to them
Otherwise seek out a trusted colleague close to headquarters
Provide an example of a company that provided goo managerial oversight in an M&A
3G capitals acquisitions of Burger King and Tim Hortons
Give an example of an acquisition where valuable skills were effectively transferred
Pepsi-Colas transfer to frito lay
Transfer was of skills for running a direct store delivery logistics system - a key to cultivating success in snack category
Provide an example of a company who fell short of transferring valuable skills
Google and their purchase of android
There was potential to turbocharge anrdoids development into a dominant smartphone operating system, but fell short
provide an example of a company that shared its valuable capabilities
P&G shares its multifunctional, co-located customer team capability and its mediabuying capability with its acquisitions
The latter may reduce advertising costs of large acquisitions by 30% or more
Explain how a company can successfully share valuable capabilities
Success lies in understanding the underlyinh strategic synamics and ensuring that the sharing actually happens
For example - potentially biggest M&A bust ever, AOL & Time Warner failed because the economics of sharing capabilities didnt make sense
