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BGS-3-Growth through acquisition (Acquisition analysis (Strategic benefits…
BGS-3-Growth through acquisition
Pitfall of acquisition
WHY they fail ?
Difficulties in implementation
Easy on paper, very difficult in practice
Post-merger integration challenges
Overpayment
M&A decrease the value of the acquiring firm while shareholders of target firm again
Acquisition premium + exaggerated benefits =
Disaster!!
Wrong target
Business model incompatibility
No obvious synergies
Acquisition analysis
Strategic benefits
Value added
Independent value
Strategic benefits - Purchase price > Opportunity cost
Synergy effect協同效應
After acquisiting, 1+1>2
Purchase Price
Take in account of integration cost
Beware of bidding war with other acquirers
Opportunity cost
Consider other potential alternative strategy
Pick the most valuable strategic choice
Firms usually overpay
Why
Growth for growth's sake
Increase managerial compensation
Winner of auction may pay more
Moral hazard
Attractive investment banking industry
Winner's curse
Actual value always less than auction price
Sticking to a course of action
Pre-existing bias
Rationalizing past behavior
Selective attention to supporting info.
Give up=defeat
Alternatives
Scaling: doing more of what we already do
Strategic Alliance
Less resources intensive than M&A
Access partner's complemetarities
Utilizes partner's capabilities
More complicated
Share revenue and control
Internal development(innovation)
Pros and cons of acquisitions
Pros
Increase entry speed
Intangible asset(ex.brand,product,service)
Overcome entry barriers
Avoid uncertainty and risk of internal development
Cons
Difficult to integrate two companies
Become highly leverage
''Synergies'' do not really exist
Overpaying