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Motives for Takeovers and Mergers - Coggle Diagram
Motives for Takeovers and Mergers
Key Definitions
Takeover- where one business acquires a controlling interest in another business = change in ownership
Merger- a combination of two previously separate businesses into a new business
External growth- use of take overs and mergers
Organic growth- growth from 'within businesses' e.g new products / expansion into a new market
Diversification- expanding into new markets with new products - the riskiest growth strategy
Key Strategic Drive of Merger and Takeover Activity
Technological change
Need for scale to remain competitve
Need to be able to supply customers globally
Low growth in mature economies
Access to wider distribution
Invest in emerging markets
3 Main Motives
Financial Motives
Focused on making the best of financial resources for shareholders
Concerned with improving financial performance
Key motives for M&A
Make use of surplus cash and high share price
Businesses with high cash balances can potentially earn a higher return by investing in other firms
Bargain hunt & Asset stripping
Can the target be brought at a knock-down price?
Potential is sell surplus assets & cut costs & still retain the business that was wanted in the first place
Managerial Motives
Focused in the self-interests of managers
Not necessarily in the best interest of shareholders
Key motives for M&A
Personal ambition & financial reward
Big turnovers attract media - boosts ego / reputation
Takeovers as 'vanity projects
Director rewards may be linked to growth
Bandwagon effect / peer pressure
Concern that firm may be left behind
Over-confidence
Pressure to do takeovers (if competitors are too)
Pressure from advisers & media (e.g investment bankers)
Strategic Motives
Closely linked to competitive advantage
Focused on improving and developing the business
Key motives for M&A
Change competitive structure
Consolidation
Remove competition
Economies of scale
Improved business capabilities
Access to better technology
Stimulate innovation
Extend the business
Markets
Globalisation
Location
Examples of motives
Kraft / Cadbury
Established global market headship in confectionery & access emerging markets
Google / Motorola
Acquire valuable smartphone patents & manufacturing expertise
Tata / JLR
Economies of scales & acquire expertise, brands, capacity and distribution
Santander / Abbey
Market entry (UK) & establish base for further acquisitions to build market share
WM Morrison &Safeway
Increase market share & exploit economies of scale to improve competitiveness
British Airways / Iberia
Consolidation; economies of scale & survival: positioning for further takeovers
'Depends on...' points
Does the acquiring firm have the financial resources to be able to persure an external growth strategy
Is the takeover / merger opportunist or part of a long term plan
Is the firm at a competitive disadvantage
Evaluation opportunities
Is / was the takeover / merger consistent with the firms corporate objectives?
Is / was there an alternative to takeover / merger which might have a similar benefit at a lower lover of risk
E.g a joint venture or strategic alliance
The Size / scale of the takeover / merger
How significant is it?
Does the firm have a track record of success to M&A?
This should reduce the risks involved in subsequent transactions, particularly if its a similar size / type
Which of the 3 main motive types was the most significant or influential
Financial
Managerial
Strategic
Drawbacks of Acquisitions
Resistance from employees
Non-existent synergy
Problems of integrations
Incompatibility of management styles
Upset customers
Questionable motives
Clash of cultures
high failure rate
Problems of valuation
Diseconomies of scale
High costs involved