【Group 1】 Growth through Acquisition (Members (104212014 Diane, 104212018…
Growth through Acquisition
Both parties in the deal are acting in their own
not subject to any pressure
or duress from the other party.
escalation of commitment
Buyers are so interested in an item that they make increasingly higher offers of the price they are willing to pay to try to become the new owner of the item.
:red_flag: Strategic Benefit
Efficiency or complementarity gains
Market consolidation, diversification
:check: Value of the Target
= :red_flag: Independent Value + :red_flag: Value Added
:red_flag: Purchase Price
Find other suitors if you can
:warning: Beware bidding wars
Take into account "success" costs
:check: Avoiding Overpaying
:red_flag: Strategic Benefit - :red_flag: Purchase Price > :red_flag: Opportunity Cost
Pitfalls of Growth through Acquisition
Why do they fail?
Difficulties in implementation
very difficult in practice
Post-merger integration challenges
Acquisition “premium” + exaggerated benefits = disaster.
M&As reduce the value of the acquiring firm while shareholders of target firms gain.
Firms often overpay for acquisition targets.
No obvious synergies
business model incompatibility
Alternative to Acquisition
:question: why should we adopt other alternative way rather than acquisition?
:red_flag:Acquisitions often fail
:red_flag:Bad mergers are costly
alternative ways to reach
Many forms, from straightforward to more complex
Potentially less resource intensive than M&A
Access partner's complementarities
Utilizes partner's capabilities
More complex than an arms-length contract
Foreign Direct Investment
Two firms integrate their operations on a relatively equal basis.
Acquirer make acquired firm a subsidiary.
Friendly vs. Hostile takeover
Target firm solicits an offer from an acquirer
Importing & Exporting
Acquisition-Pros and cons
Overcome difficult entry barriers
:star: Acquire intangible assets
:star: Increase entry speed
Make good use of acquired (local) firms' political influence and market reputation.
Overcoming the trust of outsider by local customers.
:star: Aid consolidation strategy
:star: Hard to integrate
complex, costly negotiation
merge disparate culture
:star: Become highly leveraged
Why firms overpay
Transaction intermediaries get profits from acquisition
Individual managers and decision-makers involved have something personally to gain
The winner of auction overpays for the acquisition
Escalation of commitment
Insist on input more resources even if recognizing past decisions won't solve problems
Acquisition benefit is more than purchase price
Consider potential costs of succeed in integrating two companies
What will the cost of success be in this potential acquisition
:star: The worldwide leader in software, services and solutions
:star:Founded in 1975
:star:An Internet-connected device, families, friends and colleagues
Microsoft to Acquire Skype
:check:Communication when working with Microsoft Office
:check: Call-back and instant messaging features in Outlook
:check:Live video chat on Windows computers and Xbox 360
:check:Increase competitiveness on the Windows Phone 7 mobile platform
:check:Skype is the perfect complement to Microsoft’s existing products
:check:In line with Microsoft’s growth strategy
:check:Prevent competitors such as Google and Apple from buying
:star:Founded in 2003
:check:Leverage the network effects
:check:Direct line communication with Skype’s large customer base