Mergers, Acquisitions, and Alliances

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Mergers, Acquisitions, and Alliances
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Strategy Development Directions
Products
Markets
3
Definitions

• Mergers
• Two firms agree to integrate their operations on
  a relatively coequal basis
• Acquisition
• One firm buys a controlling or 100 interest in
  another firm with the intent of making the
  acquired firm a subsidiary business
• Takeover
• Type of acquisition wherein a target firm does
  not solicit the acquiring firms bid

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Reasons for Acquisitions

• Increased market power
• Horizontal
• Vertical
• Related
• Overcome entry barriers
• Cross border
• New product development
• Speed to market
• Lower risk
• Increased diversification
• Alter competitive scope
• New capabilities

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Problems in Acquisitions

• Integration difficulties
• Inadequate evaluation
• Large debt
• Inability to achieve synergy
• Over diversification
• Financial controls dominate
• Substitute for innovation
• Over focus on acquisitions by management
• Too large
• Political concerns

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Successful Acquisitions

• Complementary assets
• Friendly acquisition
• Effective due diligence
• Financial slack
• Post merger low to moderate debt
• Consistent emphasis on RD
• Flexible and adaptive to change

• Synergy
• Faster, effective integration
• Identify strongest targets and avoid overpayment
• Less costly financing
• Lower financing cost, lower risk
• Long term competitive advantage
• Faster, more effective integration and synergy

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Restructuring Changing set of businesses or
financial structure

• Downsizing
• Lower labor costs
• Loss of human capital
• Lower performance
• Downscoping
• Lower debt costs
• Emphasis in strategic controls
• Higher performance
• Leveraged buyout
• Emphasis in strategic controls
• High debt costs
• Higher performance
• Higher risk

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Reasons for Alliances

• Critical Mass
• Competitors or complementary suppliers
• Cost reduction
• Improved customer offerings
• Co-specialization
• Concentrate on core competencies
• Value chain or Cross border
• Learning
• Development of new competencies
• Short term

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Types of Alliances

• Joint ventures
• Collaborative
• Independent
• Consortium (project-based)
• Networks
• No formal relationship
• Share marketing
• Opportunistic
• Depends on
• Market cycle
• Strategic capability
• Managing joint resources required
• Separate, dedicated resources
• Expectations of stakeholders

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Successful Alliances

• Suitability
• Addresses organizational environment, capability,
  and expectations
• Acceptability
• Expected performance outcomes
• Return
• Profitability,
• Return on capital, Payback period, Discounted
  cash flow
• Cost benefit and shareholder value analysis
• Risk consequences of failure
• Capital structure effects
• Sensitivity analysis
• Feasibility
• Financial
• Specific resources

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Company Strategy Analysis PapersDue March 4

• Student teams will visit firms in a specific
  industry to evaluate how each firm attempts to
  differential itself from its competitors in order
  to increase its profit margin. Papers are due
  March 4th by email to gerald_groshek_at_redlands.edu.
  
•  
• One of the competitive realities of the market
  in the 21st century is that very few firms can
  succeed by emphasizing only cost or
  differentiation. When considering the value
  chain tool developed by Porter, it is important
  to remember that the capabilities in each
  activity have the goal of widening the profit
  margin whether by positively affecting the cost
  to produce a good or service or by the ability to
  differentiate a good or service from competitors
  offerings in ways that customers value, or both.
  Thus, it is important for firms pursuing
  differentiation to determine where costs can be
  cut without damaging the ability to meaningfully
  differentiate their good or service in ways that
  will allow them to sell products at a high price.
  Similarly, low-cost firms need to look for
  opportunities to add differentialtion where they
  can without increasing average unit costs. In
  this assignment, you will examine the latter
  situation. 
• To complete this exercise, you should visit the
  firms involved. You are likely familiar with the
  firms listed below and you probably have some
  well-developed ideas about what each firm does to
  find some cost lowering and differentiation
  opportunities in a competitive environment.
• After visiting one of the following group of
  company stores, assess how each of these firms
  pursues cost leaderhsip or differentiation or
  both as part of the means of implementing its
  business-level strategy. How does what you
  observe about these stores attempts to offer
  some differentiated features match with the
  assumptions you had before entering each store?
  If so, what are the changes? After explaining
  the ways in which you see these firms
  differentiating their product offerings and their
  store presentations, assess and explain how and
  why these approaches have the potential to help
  the firms create value for customers.
•  
• MacDonalds, KFC, and Quick 
• Conforama, Ikea, But 
• Gap, Benetton, Zara 
• Carrefour, E. Leclerc, Auchan (or Intermarche) 
• Orange, Bouygues Telecom, SFR 
• Electronics at FNAC, Darty, BHV
• Music (CDs) at FNAC, Virgin, Crocodisc

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Considerations

• Analyze overall industry characteristics
• Porters five factors
• Analyze internal resources and core competencies
• Primary activities
• Support activities
• Analyze business level strategy
• Competitive scope narrow, broad
• Competitive advantage cost, differentiation
• Discuss business level strategy