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SMMCG9[CS-2] Corporate Transactions - Coggle Diagram
SMMC
G9
[CS-2] Corporate Transactions
Group Members
Anna
Phoebe
Pete
Adiyasa Gao
Fion
Levi
Jerry
Introduction
Mergers and Acquisitions
Divestitures
Strategic Alliances
A Portfolio View
Interview
Jamie Cleghorn
Focus on value
Creating vision
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Story telling
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Waiting
Give time and space for people
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Goal of M&A
Company exist to create value full stop
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Brett Conradt
Common pit-falls from in-experienced manager
highlight
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Tips for benefiting from M&A
Company structure
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Macro view
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Process of M&A
Decide which firms to target
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Acquired frims
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Case
Disney
Animated Movie Economics
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by 1960
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by 1966 &1971
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The most Disney's that actually Pixar movies
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2009 & 2012
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Two types of effects
Intertemporal effects
Suggests indicates interdependencies over time
Imagine a process in the opposite direction
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Acqui-hiring
Ex:Google's foray into cell phones
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Call this a Real option
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Two types of effects
Contemporaneous effects
Opportunities for synergies and learning across
Chance to redeploy resources from one to the other that can be exploited
A Set
Seek to acquire a number of targets in the same industry
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Another set
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Corporate transactions
Acquisitions
Often destroy value
Divestitures
Opposite phenomena of M&As
Strategic alliances
A hybrid middle option
Relational contracts
Licensing
Equity Alliances
Joint ventures
co-own and also contribute resources
Creat a separate third firm
Human capital
Technology
Access capabilities or markets more quickly and surely
Ex：Biotechnology companies form alliances with pharmaceutical companies
Pharma : new technologies and innovations
Biotech : help testing and marketing their final products
Reduce each of asset commitments,maintain some flexibility to invest in other opportunities
Microsoft and AT&T entered into in 2019
Cloud
AI
5G
AT&T would put a lot of it's network functions on the Cloud, using Azure
AT&T rolling out 5G
Helping Microsoft create solutions by building on 5G
Use and develop various artificial intelligence technologies
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Alliances
Moral hazard
Partners performance of his responsibilities
cannot be accurately or fully monitored
How to manage alliances
Ex：And the Ship Sails On
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Pick the right partner
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Include walling off key technology
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Set up good relational governance
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Reevaluate the alliance
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Key elements partner selection
Alliance structure
Ongoing management of the alliance
Adverse selection
Choice of partner
Resources or assets contributed by partners
Hold up
Flexible and Adaptable
But are not made to last forever
If can't longer be adapted to your needs
Exit the alliance
Transaction
Breaks up a larger corporation
Leads to the separation of a business unit from the company
Modes
spin-off
Business unit is separated completely from the parent company and its shares are distributed to the parent shareholders
split-off
Pparent shareholders are given the option to exchange their shares for that of the unit
carve-out
The parent sells part of its ownership in a unit for cash
Unit sales
Business unit is sold to another firm, usually for a cash compensation
Divestitures Mode Characteristics
spin-offs
Most value
Largest units
Unit sales
Fastest to execute
Smaller units
Curve- outs
Slowest
IPO
Reasons for divestures
Low profitability of unit
Reduce risk or liability
Lack of strategic fit (low strategies)
Refocus on core business (parent)
Free up and redeploy resources / capabilities
Raise cash for parents
Free up entrepreneurial and innovative potential units
The role of commercial
PARC
Outstanding at innovation
GUI, Ethernet, Internet, laser printer, bitmap
Mouse (SRI), WYSIWG text editor, fully formed OOP
No commercial success
Divestitures Management
Clear
Given divestitures goals
Identify
Right divestiture mode
Ensure
Units(patent firms) - right resources/ the right to resources
Open
Divestiture units- clear evaluation
Pay attention
Post divestiture governance mechanisms
(leadership, board, culture reset)
The distinction between mergers and acquisitions
Distinction is a little less sharp
People try to draw has to do with the intent
Circumstances surrounding a particular transaction
Between acquisitions and mergers is quite fuzzy
Mergers
Combining two companies
Having a
friendly approach
to the transaction
On the other hand
Tend to be outright purchases or takeovers of another company
Can be friendly or unfriendly
Sometimes it's hard to know whether to put them under mergers or acquisitions
Many of these transactions are legally structured as mergers for tax reasons
M&A
Sometimes result in positive, sometimes negative
Lower the acquirer's stock price
Excessive premium offered for the target
Some deals, even the sum of the market values of the acquirer and the target goes down
M&As destroy value
Some insight into why M&As destroy value is by asking why companies do merges and acquisitions
Companies may do merges and acquisitions to get into new markets or to get access to new technology or capability
They have a very well honed acquisition and integration capability
Where managers are doing M&As not necessarily in the best interests
Many companies may also engage in M&As
Synergies
Helping the acquirer develop new capabilities
Brings in new products, or technologies, or even talent with a particular skill set
Target's business and create more value
Leveraging strategy
EX.Amazon
Considerable online capabilities to create more value from Whole Foods retail business
Acquisitions
EX. Private equity firms
Buy target companies and then try to increase their value by improving how they're managed
Identify targets that might be undervalued by the market for one reason or another
They have a thesis about how the target firm's value can be improved
Simply leveraging its capability to improve management and thus to create value from the target
Mergers result in so much value destruction
Inability to actually integrate the two companies and realize the synergies that were presumed to exist
Extensive experience advising clients on M&As
Company that's positioning itself for sale is going to highlight the good things about the business and maybe not so much the things that need work
Dig for what are the opportunities for improvement
Beyond sort of the pitch from the company and really to dive deep into the work and into the business to identify some of those opportunities for growth
Open to team members and pressure testing sort of the things that are coming out of the work
In transactions, you have to think about the parties that are involved
Main reasons for doing M&As
Acquisition may increase market power that will increase revenues
Have cost of new product development
Acquisition is cheaper, then doing it yourself, that lowers your cost
Increase speed to market
Lower risk
Straightforward
Diversification
Avoiding excessive competition
Main challenges in realizing value
Have a different culture that may be very different from the original acquiring company's culture and then they're mixing together
A lot of the people from the acquired company leave the organization
It very high turnover of the management skill in the acquired organization
Acquire the company, it may put the acquiring firm in a higher debt ratio
Makes the firm unable to do strategies that they would like to do
Managers may be overly focused on acquisitions
Their performance in what they're doing may suffer
Bureaucratic cost of becoming too large in organization and there are your cost structure
Well-managed M&As
Clear identification and quantification of the types of synergies
that are possible based on the resources and the capabilities of the two companies
Objectivity in evaluating and bidding for the target company
Not helpful if emotions or desperation comes into play
Useful to have some financial slack
Definition of corporate strategy
Pursuit of competitive advantage to the configuration and coordination of a company's multi-business activities
BCG, M&A report
IMAA or the Institute for Mergers Acquisitions and Alliances
Involve actions with other entities firm
Through contracts and alliances
Do not technically expand the scope of the company
Extend its reach and ability
Form an alliance or outsourcing relationship with the other business
Corporate Transactions
Provide an alternative less incremental way
They always by definition involve another firm