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SMMC G4 [CS-2] Corporate Transactions, G4 (Mandy, Wendy, Thalia, Allison,…
SMMC G4 [CS-2] Corporate Transactions
Corporate Transaction
Important element when pursuing competitive advantage in corporate strategy
Involve actions with other entities that change or manage the scope of the firm by less incremental way
Adding the scope
mergers and acquisitions
Decreasing the scope
divestitures: sale, carve-out, spin-out
Transactions with other firm by contracts and alliances
may extend its reach and ability similar to increasing in scope
Resources
BCG M&A Report
IMAA
Thomson ONE
Mergers and Acquisitions
Mergers
Combining two similar companies either in size or valuation
Friendly approach
Acquisitions
Outright purchases or takeovers of another company
Can be friendly or hostile takeover
Do M&As create value?
Value goes to the target
Impacts on acquires' stock price
Long-run
Significant declines
Short-run
Average
Why firms do M&A?
Bad reasons
Principal agent problem
Managerial hubris
Good reasons
Well honed acquisition and integration capability
Overcome competitive disadvantages
To get into new markets
Three-part Test
The combined businesses have the potential for valuable synergies
This value is not dissipated by the cost acquisition
Have a strong, credible post-merger plan for realizing the synergies
Attributes
Clear identification and quantification of the types of synergies
Objectivity in evaluating and bidding for the target company
Maintain financial slack
Well-managed implementation plan
Post- merger Challenge
Poor evaluation and weak due diligence
Weak integration plan
Taking too much debt or risk
Main reasons for doing M&As
Market power
overcome entry barriers
cost of new product development
Increase speed to market
increase diversification
avoid excessive competition
lower risk compared to developing new product
Divestiture
Reasons for divestitures
Reduce the risk or liability
Lack of strategic fit
Get rid of low profitability units
Flee up and redeploy resources and capabilities
Raise cash
Free up the entreprenurial and potential
Divestitures modes
Carve out
Partial sale of a business unit's shares to investor
The slowest to execute
Unit sale
sale business unit to another firm
The most common divestitures mode used.
The fastest to execute.
Spin off
Separate the business unit to parent's shareholder
Create the most value.
Split off
The shareholders can exchange their shares.
How to manage
Important to pay attention to the post divestiture governance of the domestic unit
Managers need to be clear about the goals of any divestiture
Make sure that both the parent and the
unit have the right resources to achieve the goals
Open to divesting their units
Definition
Transactions that break up and separate a business
unit from company
PARC
Palo Alto Research Center
Xerox PARC
The graphical user interface
Know nothing about the achievements
Be entrepreneurial and innovative
Strategic Alliances
What is Strategic Alliances?
Potential alternatives to full integration and full separation
Strategic Alliances types
Licensing
Contractual arrangement for access to technology, typically change for royalties
Equity alliance
Strategic alliance where at least one firm invests in the other
Relational contract
Long-term contract for services or products from another company
Joint venture
Creates a separate third firm that own and share the resources together with the alliance partners
Why firms do Strategic Alliances?
To access capabilities or markets more quickly and surely
To reduce each of their asset commitments and maintain some flexibility to invest in other opportunities
To learn from its partner and thus upgrade its own resources
To shoulder all the costs and all the risks of new business opportunities
The problems
Coordination
Partner compete about who learn more faster from the other causing joint activities uncoordinated
Conflict
Actions might be seen as opportunistic
Partners are also potential competitor
They can access to your capabilities, technologies, or markets
How to make alliances work?
Alliance structure
Two broad approaches
Credible commitments
Negotiate some general conditions, which could also be in the form of legal contractual language.
Contractual terms
Negotiate a whole bunch of legal contractual terms.
Risk
Contractual safeguards
Seeking credible commitments
Walling off key technology
Agreements and governance
Managing alliances
Learn from your partner
Develop some of the capabilities that you came to the alliance for.
Adapt structure and management over time
Do the partners still contribute valuable assets?
Are safeguards and relational trust still in place?
Does the alliance still provide strategic overlap?
Adapt alliance or exit?
Build and reinforce trust
Partner selection
Good partner
Contribute towards the creation of value
Seek a different benefit from the other party
Advance their strategic goals
Accept a fair distribution of benifits
What should we do?
Do our homework and research potential partners before forming an alliance.
Conclusion
Effects
Contemporaneous effects
Opportunities for synergies and learning
Chance to re-deploy resources from one to the other
Seek to acquire a number of targets in the same industry.
Seek to combine them to exploit scale and leverage synergies.
Inter-organizational networks.
Intertemporal effects( real option)
Indicates interdependencies over time
See another opportunity to add to a complement that capability with say another acquisition
Diverse some business in order to re-deploy its resources and to focus on other businesses.
Acquire resources as part of one transaction and then find uses for the resources somewhere else within the company.
Be learning and capability augmentation over time.
three key types of corporate transactions
Divestitures
Divestitures were described as the opposite phenomena of M&As.
Strategic alliances
Alliances is a hybrid middle option.
How both alliances and divestitures could be managed well.
Potential inter-dependencies
Merges and acquisitions
M&A's often destroy value
Three-part test that can help us undertake value-creating M&As.
G4
Mandy
Wendy
Thalia
Allison
Charlie
Emily