Strategy and Practice 6 - Acquisition-Based Strategy
The explorer metaphor is a better explanation than the economic and financial explanation
M&A can be studies from 4 perspectives
- Capital mkts - wealth creation - Jensen - M&A result in more efficient mkts
- Strategic mgt - performance of the merged firm - Lubatkin, synergies will have a positive impact -
- Org behaviour - Impact on individuals - coming together og two cultures
- Process - Creation of value after merger - Jemison - actions of mgt and integration determine success of merger
Strategic Advantage - Positioning perspective - frameworks
- simplify complexity
- focus attention
- Can over simplify
- ignore HR dimension
- static - do not view it as a process
- M&A are more complex than cites - multiple hidden motives in some cases
- cultural issues especially x-border
- technical and operations integration issues
Idea - Acquisition justification - negotiations THE WALL- Acquisition integration and results
Why do they fail
- Hubris
- princesses and toads
- Overpayment
- Icarus
!!!Exploration strategy brings out the characteristics of M&A as a
- Process
- multiple connections
- HR component
- Motives
!!Issues
- Momentum - merger activity can create its own momentum regardless of the benefits
- Oversimplification / Fragmentation - Too much focus on seeing merger as a finaciual transction and the financial imperatives at the expense of process issues
- Ambiguity - things left unanalysed to avoid conflict until after merger
!!The gap Idea, justification, negotiation GAP Merger integration and results
Factors affecting the GAP
- Friendly or hostile
- Similarity of the businesses
- Limits of due diligence - neutrality and objectivity
Post integration issues
- Task integration
- Cutting costs
- Xfering capabilities
- Integrating systems 40% of co's have difficulties
- HR Integration
- Poor morale
- Lack of understanding of the acquired company
- poor mgt practices
- employee resistance
- loss of employees and knowledge
External pressures
- Stakehoilder expectations
- Competitors
- Legal issues
!!M&A's across borders
- X-country cultural integration is n important factor
- Successful ones Shell and Unilever
- X-country cultural integration is n important factor
!!The riles of mgrs post M&A
- Mgrs make more radical decisions
- Make more changes to exec positions
!!Success of the acquisition can be measured
- Contribution to profit
- Recovering the cost of capital
- Strategic objectives have been met
See also Impirical Evidence on M&A M&A M&A Issue
Part2
Conventional views of M&A............................................................Exploration Rational motives...........................................................................Complexity of motives Focus on signing the deal.............................................................Focus on the process Numerical and contractual issues...................................................HR issues Fragmentation of issues................................................................Interconnectedness of issues Single performance outcomes........................................................Multiple outcomes An end in itself.............................................................................Start of further exploration
Cylec - Motivation - launch - style of exploring.......Possession....Realizing value .........................................failure or success.......Implied value....Failure.. success
!!Why explore Commercial rewards Personal rivalries Personal rivalries
Financial motivations
- May allow borrowing at a lower cost
- portfolio effect reduces risk
- tax advantages
- Exploit resources at the acquired company
- pursuit of profit
- gaining mkt share
- Buy before somebody else buys it
!!Examples Suchards failed attempt to acquire Rowntree - suchard opened the door but did not succeed and was acquired themselves (viewer) Compaq acquired DEC but merger was a failure - culture clashes and the rise of Dell (Scott) BoS attempt the t/o over - failed but acquired knowledge to acquire Abbey Granada bought THF - Amundsen - meticulous and ruthless
!!Post acquisition activity //Business as usual//
- quick wins
- Sell off non-core activities
- Cost reduction
!!Evidence
- 50% of mergers fail based upon proposed reasons
- Over optimistic potential
- integration issues
- managerial aggrandizement