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[G5] Growth through Acquisition (Acquisition Analysis (determine in…
[G5] Growth through Acquisition
What is M&A
integrate equally
buy the aquiree
Pros and cons of M&A
Pros
overcome entry barriers
accelerate the speed of entry
gain intangible assets
avoid development risk and uncertainties
Cons
difficult to integrate
become highly leverage
overpaid
Pitfalls of M&A
wrong target
post merger integration or the implementation
Over payment
reduces the value of shareholders of target firm gain
"premium" + exaggerated benefit = disaster
Alternatives
scaling
internal development
strategic alliance
independent parties joint activity
potential advantages
utilize that partner's capabilities
access a strategic partner's complementarities
potentially less resource intensive
Many form
potential disadvantages
more complicated than an arms length contract
share the revenue and control
Why firm overpay for M&A
increase managerial compensation
winner pay more than the item is worth
Fees for M&A
lower quality deals
escalation of commitment
selective attention to supporting information
pre-existing bias distorts perception of information
rationalize past behavior
competitive situation
The EGO involved in the executives
Acquisition Analysis
the biggest cost
purchase price
determine in advance
turn out to be problematic
high potential for growth and value creation
Opportunity cost
Strategic benefit-Purchase price>Opportunity cost
Strategic benefit
Independent value
Value added
efficiency / complementarity gains
market consolidation /diversification
consider
potential strategic benefits outweigh the potential costs
fail
overpays for the target
never able to recover all of those costs