Knowledge Objectives1. Explain the popularity of acquisition strategies
for firms competing in the global economy.2. Discuss reasons firms use an acquisition strategy
to achieve strategic competitiveness.3. Describe problems that work against developing a
competitive advantage using an acquisition strategy.4. Name & describe attributes of effective acquisitions.5. Define the restructuring strategy and distinguish
among its common forms.6. Explain the short-term and long-term outcomes of
the different types of restructuring strategies.
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Mergers and Acquisitions
Takeover:
An acquisition where the target did not solicit the bid of the acquiring firm.
Merger:Where 2 firms agree to integrate
operations on a relatively co-equal basis.
Acquisition:
Where a firm buys controlling interest in another with intentions to make the
acquired a subsidiary within its portfolio.
M&A & Types of Acquisitions
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Acquisition Types
The purchase of a firm in an industry associated with the buyer’s industry.
Related Acquisition
Vertical AcquisitionA firm acquiring a supplier of distributor of one or more of it’s goods or services.
The acquisition of a company competing in the same industry in which the acquiring firm competes.
Horizontal Acquisition
M&A & Types of Acquisitions
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Reasons for Acquisitions
Increasedmarket power
Overcomingentry barriers
Increased diversification
Reshaping the firm’s competitive
scope
Faster, lower cost new product
development
Lower risk than developing
new products
Learning & developing new
capabilities
Organizational Development
Concerns
Market & Scope
Concerns
Acquisitions
Reasons for Acquisitions
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Reasons for Acquisitions Market & Scope Concerns
Barrick Gold’s purchase of Placer Dome.
Increased Market Power
Acquisition intended to reduce the competitive balance of the industry.
Best Buys purchase of Future Shop
Overcome EntryBarriers
Acquisitions kill costly entry barriers that may make start-ups economically nasty.
Jim Pattison Group of Companies
Reshape Competitive Scope
Reduce a firm’s dependence on specific markets alters a firm’s competitive scope.
Toronto’s Onex Corporation
Increased Diversification & Scope
Acquisitions to reduce dependence on a single or a few products or markets.
Barrick Gold’s purchase of Placer Dome.
Increased Market Power
Acquisition intended to reduce the competitive balance of the industry.
Best Buys purchase of Future Shop
Overcome EntryBarriers
Acquisitions kill costly entry barriers that may make start-ups economically nasty.
Toronto’s Onex Corporation
Increased Diversification & Scope
Acquisitions to reduce dependence on a single or a few products or markets.
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M&A & Types of Acquisitions
Market & Scope Issues
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Cisco Systems acquisition strategy.
Learn & Develop New CapabilitiesAcquiring firms with new capabilities helps the firm to learn, gain knowledge and remain agile.
Inbev’s Purchase of Anheuser-Busch.
Buying established businesses reduces risk of start-up ventures.
Lower Risk than developing New Products
Couche-Tard bought Statoil to get a foothold in North & Central Europe convenience store market.
Increased Speed to Market at Lower CostAllows market entry in a more timely fashion.
Reasons for Acquisitions Org. Development Concerns
Development Concerns
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Problems with Acquisitions
Administrative Difficulties
Strategic Difficulties Inadequate
evaluation of target
Too muchdiversification
Inability to achieve
synergy
Integrationdifficulties
Large orextraordinary
debt
Mgmt. over focus on
acquisitions
Resulting firm is too
large
Acquisitions
Problems with Acquisitions
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
CanWest Global Communications 2000 acquisition Hollinger Newspapers put it on the road to its 2009 bankruptcy.
In 2006 Brazilian Iron miner Vale took over Canada’s InCo.A top down mgmt. style clashed with a participative one. Most top Canadian mangers left & union strikes followed.
Acquisition Problems Administrative Difficulties
Integration DifficultiesDiffering cultures may make integration of firms hard.
Large or Extraordinary DebtCostly debt can create onerous burden on cash outflows.
Administrative Difficulties
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Toronto’s Brookfield Asset Management before it spun off its electric transmission and timber interests.
Japan’s Livedoor / the original LTV.
Acquisition Problems Administrative Difficulties
Mgmt. overly focused on AcquisitionsManagers lose track of core business by spending so much effort on acquisitions.
Too Large
Large bureaucracy resulting in reduced innovation & flexibility.
Administrative Difficulties
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Acquisition Problems Strategic Difficulties
In 2010 HP’s stock fell after it won a bidding war with Dell for computer storage device maker 3PAR.
Inadequate Evaluation of Target‘Winners Curse’ causes acquirer to overpay.
GE - prior to selling businesses and refocusing.
Overly DiversifiedAcquirer does not have expertise required to manage unrelated businesses.
Monsanto’s entry into the market for non-genetically modified fruits and vegetable seeds.
Inability to Achieve SynergyJustifying acquisitions can increase estimate of expected benefits.
Strategic Difficulties
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Attributes of Friendly Acquisitions
Attributes Results
ComplementComplement = goes well together.
ComplimentCompliment = An admiring remark.
Likely synergies and competitive advantage by maintaining strengths
Acquired firm’s resources are com-plementary to acquirer’s core bus.
That allow for faster & more effective integration
Strongest complementarities are acquired & overpayment is avoided
Acquirer conducts negotiations carefully & deliberately with target
Financing (debt or equity) is easier and less costly to obtain
Acquiring firm has financial slack (cash or favourable debt position)
SLACK, not
Slacker!
Faster & more effective integration facilitates achievement of synergy
Has experience with change and is flexible and adaptable
Merged firm maintains moderate, not high, levels of debt
Lower finance cost & risk avoidance of trade-offs associated with hi debt
Maintain long-term competitive advantage in markets
Sustained and consistent emphasis on R&D and innovation
Likely synergies and competitive advantage by maintaining strengths
Acquired firm’s resources are com-plementary to acquirer’s core bus.
Strongest complementarities are acquired & overpayment is avoided
Acquirer conducts negotiations carefully & deliberately with target
Financing (debt or equity) is easier and less costly to obtain
Acquiring firm has financial slack (cash or favourable debt position)
Lower finance cost & risk avoidance of trade-offs associated with hi debt
Merged firm maintains moderate, not high, levels of debt
Faster & more effective integration facilitates achievement of synergy
Has experience with change and is flexible and adaptable
Maintain long-term competitive advantage in markets
Sustained and consistent emphasis on R&D and innovation
Friendly Acquisitions
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M&A & Types of Acquisitions
Reasons for Acquisitions
Market & Scope Issues
Development Concerns
Problems with Acquisitions
Administrative Difficulties
Friendly Acquisitions
Restructuring & Outcomes
Strategic Difficulties
Reducing scope of operations;Selectively divesting or closing non-core businesses;
Leads to greater focus.
Restructuring Activities
All the auto companies.
Brookfield Asset Management / Tata Group.
Downscoping
Downsizing Wholesale reduction of employees.
Leveraged Buyout (LBO)A party buys a firm’s entire assets in order to take the firm private. Michael Dell & Silver Lake Management LLC taking Dell computer private for $24 billion by Nov. 5 2013.
