aquisition m&a

8/12/2019 Aquisition m&A

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Acquisition,Merger and Alliance Strategies


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Introduction: Acquisitions, Mergers& Alliances

An enterprise should consider alternative options toimplement its strategic aims, to merge with or acquire(takeover) another enterprise, or to enter one or moremutually beneficial alliances.

Alliances : Collaborations between partner enterpriseswhich take many forms characterised by degrees offormality, longevity, complementarity and symmetry.

Acquisition: The purchase of one enterprise by another;the acquired enterprise loses some or all of its identity.

Merger: The combining of enterprises whose boards andexecutive managers declare a mutual respect and desire towork together in the interests of both.


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Motives for & Strategic Logicsof Acquisitions & Mergers

A proactive enterprise has many reasons toconsider the option of a merger or acquisition.

The strategic motive for a strong enterprise tocombine with a same-sector competitor are

principally that it increases its dominant

market share and coverage. Learning and knowledge accumulation are particularly strong motives.


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Acquisition & MergerStrategies


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Motives for & Strategic Logics ofAcquisitions & Mergers

Financial motives for mergers and acquisitionsanticipate various potential benefits which include:

Larger scale enhances the prospects for obtainingnew investment funds on better debt or equity terms.

One-time profits by rationalising, restructuring, ordismembering a poorly-performing enterprise.

Paying for valuable assets with shares. Tax advantages.


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Stated Reasons for Merger& Acquisition Activities


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Types of Merger & Acquisition

Acquisitions and mergers with intent to reducecompetition by increasing sector dominance arestrategically rational.

Mergers and acquisitions motivated by the intent todiversify create either:

a. Vertical combinations of suppliers or customers

b. Horizontal combinations that can be related,concentric or unrelated conglomeratediversifications.


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Types of Merger & Acquisition


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Planning & ExecutingAcquisitions & Mergers

The key stages of completing an acquisition are to:

Identify and select targets consistent with the strategic or financial logic in use. Assess bid tactics while maintaining a high level of secrecy. Decide the offer price and the best mix of cash, shares and debt to finance it.

Decide the timing of the offer announcement and how to present it publicly. Engage in post-offer negotiations, further announcements, revised bids and PRactivities needed to conclude (or withdraw from) a deal.

Complete the financial and legal searches to assess whether published documentsand statements accurately represent the assets and capabilities to be acquired(due diligence).

Decide the crucial executive appointments before starting to manage subsequentintegration. Evaluate post-integration performance and establish new procedures to maximise

the mutual learning and adoption of best practices.


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Planning & Executing

Acquisitions & Mergers Hostile takeover bids have several consequences which:

Polarise opinions and prejudice attitudes among

shareholders, employees, commentators and the investing public. Increase the chance of rival bids once targets are in play. Encourage targets to make themselves less attractive.

Oblige bidder and target to spend large sums onpropaganda advertising to support their positions.

Force senior executives in the target enterprise to quitimmediately after they have lost the battle.


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Challenges of Post-Acquisition Integration

Successful integration requires careful thoughtabout crucial strategic questions, particularlywhen a new enterprise enters an existing

portfolio: How independent are its activities from those

of other portfolio members and howindependent or interdependent should they bein future?

How much managerial autonomy should itretain?


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Priorities in Merger Integration

If the enterprise units are essentially independent and will benefit fromcontinued autonomy there is a strong case to retain distinct identities andcurrent boundaries, while exchanging best practice ideas with others,sharing resources and achieving mutually beneficial synergies.

Where interdependence is high and the need for autonomy is low, the

case for full integration is clear. Absorption means consolidating new enterprise units with one or more

existing units and rationalising their operations accordingly. When interdependence is high, there are competing desires to collaborate

yet retain distance and autonomy.

When interdependence is low, the decision whether to integrate fullymust consider the particular circumstances, although full integration probably remains the better option.


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Priorities in Merger Integration


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When Acquisitions & Mergers Disappoint

Although merger and acquisition strategies aim toachieve growth more rapidly and effectively thaninternal development strategies, future

performance frequently disappoints because:

1. The strategic logic of integration was weak.2. The financial logic was poor or compromised.3. The prior due diligence was inadequate.4. Internal relationships became hostile, poisonous

and vindictive, destroying the prospects ofconstructive collaborations.


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Benefits of Mergers & Acquisitions

Strategies that embrace mergers and acquisitions canachieve indisputable benefits when the parties:

Assemble high quality, complementary assets andskills.

Deploy these assets and skills to create, greater

sustainable value for their respective shareholders. Work hard to achieve productive integration.


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Alliance (Collaboration)Strategies


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Motives for & Strategic Logics

of Collaborative Alliances Enhanced scale that allows partners to achieve a minimumefficient scale of operation that neither can achieve alone.

Scope economies, by eliminating duplication andspreading costs.

Allowing partners to contribute complementary resourcesor technologies.

Greater flexibility compared with merger or acquisition.

Sharing risks and reducing uncertainties. Opportunities to learn from a partners capabilities when

they are clearly superior.


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Alliance Options & Characteristics

Should a prospective alliance partner seek:

Partners with similar interests, ambitions and capabilities,or those that offer complementarities in markets, resourcesor capabilities?

Vertical or horizontal linkages? Relationships in which it would be the dominant partner or

would it consider being of equal or subordinate status? Equity cross-holdings (long term) or purely arms-length

transactions (generally short-term)? A high degree of mutual trust or accept that pragmatic,

opportunistic behaviours will occur?


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Types of Alliance

Vertical alliances involve co-ordinated partners invarious up or downstream stages of the value-adding supply chain.

An already-influential enterprise takes a co-ordination role.

Horizontal alliances involve a collaboration between the enterprise and a competitor in specificareas, strengthening their respective positionsagainst a more dominant competitor.

Similar considerations apply to collaborations beyond the sector that parallel those for mergersand acquisitions.


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Types of Alliance


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Alliance Options & Characteristics The decision whether to enter an alliance and the precise form it

takes will depend on an enterprises history, currentcircumstances, ethos and identity, the characteristics of

prospective partners and the benefits expected.

Senior executives and prospective partners are concerned whether:

They can tolerate dispersed ownership and control of progress-seeking ventures?

Relationships between enterprises are expected to be: Long-term and trusting? Short-term and opportunistic?


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Strategic Alliances based on PositiveAttitudes to Trust & Shared Control


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3 Distinct Forms of Alliance

1. Joint ventures (JVs)

2. Formal, non-JV alliances3. Less formal, participatory alliances andnetworks


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Joint Venture (JV) Strategic Alliances

Joint Venture (JV): a new enterprise is set up to achieve anagreed strategic purpose which involves shared ownershipand high commitment, generally over relatively long time

periods.

JVs are the most formal and least reversible kind ofcollaboration between 2 or more partners. The partners invest jointly and accept agreed proportions of

its equity, costs and returns. When a JV requires greater investment funds than the

partners can provide, they can involve external investors. Although partners share management responsibilities,

arrangements vary considerably and the parent enterprisesappoint an executive management team.


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Joint Venture (JV) Strategic Alliances

Specific JV purposes intent to:

Supply operational or strategically significant inputsto the partners.

Provide a distribution channel to provide them withaccess to downstream demand.

Develop and market goods or expert services to

extend their repertoires. Provide a diversification vehicle. Fulfil a specific aim.


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Non-JV Alliances

A formal alliance that involves less commitmentthan a JV may be more acceptable, despite

featuring similar motives and characteristics. An alliance may be vertical or horizontal whichinvolves non-competing and competing partners,who may be of equivalent status or have adominant-subordinate relationship.


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Horizontal Alliances betweenEquivalent-Status, Non-Competing Partners

Non-competing partners in horizontal alliances build on complementary assets and resourcesin 2 main ways.

1. An enterprise uses its partner to performvalue-adding activities that directly extend itsown capacity or coverage.

2. Partners may cross-license the use of brands,logos and other intellectual property.


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Horizontal Alliances betweenEquivalent-status, Competing Partners

Horizontal alliances also feature amongenterprises that compete or have the potentialto compete, but find areas to collaborate.

Alliances must be carefully crafted andtransparent to avoid accusations of intent torestrict competition.

Competitor collaborations commonly occurhorizontally at an upstream value-adding stage,typically in R&D, sourcing or production.

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Horizontal Alliances between Non-Competing Partners of Senior & Junior

Status The crucial factor determining the development of

such alliances is their unbalanced power relationship(or unequal status).

The dominant partner exercises considerableinfluence on the operations of its subordinate partner(s).

Junior status means that the subordinate has limitedinfluence over key decisions and allows thedominant partner scope to determine how thealliance functions in practice and will develop overtime.


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Vertical Alliances betweenEquivalent-Status Partners

Vertical alliances extend enterprises contractualsupply chain relationships via the exchange ofknow-how and commercial information.

Suppliers become actively involved in productdesign and distribution arrangements.


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Vertical Alliances between Dominant& Subordinate Partners

Vertical supply chain alliances enable one partner progressively to increase and exploit powerdifferences to maximise its benefits.

They become asymmetric power relationships between dominant and subordinate partners.

A dominant partner further increases its leveragewhen it enters parallel alliances with multiple,competing subordinate partners.


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Less-Formal Network Alliances

Less-formal, multi-partner alliances may provide benefits for enterprises of all sizes, provided thatentry, exit and conduct are not over- formalised.

These alliances often have network characteristics. For-profit alliances and networks draw on mutual

self-interest. Some offer (and require) forms of commercial

commitment, sometimes only membershipsubscriptions.


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Alliance Strategies & Performance

Alliances aim to achieve the following objectives:

Defend current positions and mutual interests. Diversify and grow. Enhance efficiency via economies of scale and scope. Exploit strengths, compensate for weaknesses and

acquire new capabilities. Enter new markets and operating domains flexibly

and cost-effectively. Share investment costs and the risks of new ventures.


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Alliance Strategies & Performance

Any proposed alliance requires advance judgements about the prospects of its success.

Prospective partners must have clear aims. Alliances tend to have finite life-spans.


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Difficulties in Alliances

Difficulties arise in all forms of alliance when one ormore of the partners:

Dissents over acceptable performance levels andtimeframes.

Begins to dominate the other(s). Fails to perform as promised.

Acts opportunistically and exploitatively. Pursues parallel strategic changes elsewhere that

reduce the importance of the alliance.


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