Strategy and Practice 6 - Acquisition-Based Strategy

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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

!!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
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