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【G4】Growth through Acquisition (Acquisition Analysis (tips for successful…
【G4】Growth through Acquisition
Acquisition Analysis
why analysis
know the reasons for failing
over payment
wrong target
difficult complementation
choose the best strategic alliance
what
formula for choosing strategic
B-C>OC
Strategic Benefit
Efficiency,Complementary,Consolidation,Lower Diversity Risk
Value of target 1.independent 2. added
Cost
Purchase price
Avoid overpaying
Winners Curse
Bidding war
Any other cost make it be a success
acquisition. ex: Intergration cost
Worse situation
Considerating potential cost
Opportunity cost
B-C>OC
The best alternative option
tips for successful acquisition
how to create the value more
improve one's competitive position
consider the alternatives
post-merger
strategic benefit-purchase price > the cost
What's M&A
Merger
A merger is a transaction where two firms agree to integrate their operations on a relatively equal basis
Acquisition
An acquisition is a transaction where one firm buys another firm and then makes the acquired firm a subsidiary or subsumes that firm within its own portfolio of businesses.
Why M&A
Mergers and Acquisition constitute the most common method of implementing a growth and/or diversification strategy.
M&A can aid a consolidation strategy
M&A involves significant and unique capital budgeting decisions
No “dry run,” all money paid up front
Substantial exit costs (in dollars and reputation)
Managing integration is extremely complex, much like starting a new business.
Pros and Cons
Question we should ask
Why do they fail?
Difficult implementation
Overpayment
Wrong target
Why do firms persist in attempting M&A?
Agency problem
The winner's curse
Moral hazard
Escalation of commitment
Rationalizing past behavior
When in competition , giving up
Pre-existing bias distorts perception of information
Ego
Selective attention to supporting information
Alternative
Growth through Scaling
Internal Development (innovation)
Alliance Formation
Pros and Cons
Advantage
Many forms, from straightforward (R&D or marketing partnerships) to more complex (freestanding joint ventures)
Potentially less resource intensive than M&A
Access partner’s complementarities
Utilizes partner’s capabilities
Disadvantage
More complex than an arms-length contract
Revenue sharing (dividing the gains)
Sharing control (risk of goal incompatibility)
Risks of helping nurture competitors
Alliance is a cooperative relationship between firms involving the sharing of resources in pursuit of common goals. In particular, strategic alliance refers to the one between potential or actual competitors.
How to M&A
Friendly Takeover
solicits an offer from the acquirer
Hostile Takeover
haven't necessarily solicited any sort of a buyout offer