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12 Cards in this Set
- Front
- Back
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Mergers Acquisitions and Alliances
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test 3
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Three Strategic Methods
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Strategic Options
Diversification Internationalisation Innovation ---- Organic Development -----Mergers and Acquisitions ------Strategic Alliances |
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Organic Development
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Organic development is where a strategy is pursued by building on and developing an organisation’s own capabilities
Main Advantages are: Knowledge and Learning Spreading investment over time No availability constraint Strategic Independence Main Limitations Time consuming Not always easy to use existing capabilities for innovation |
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Types of Mergers and Acquisitions
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An Acquisition involves one firm taking over the ownership of another
A merger is the combination of two previously separate organisations as more or less equal partners Mergers and Acquisitions can also happen in the public and non-profit making sectors Mergers and acquisitions are typically cyclical phenomena involving high peaks and deep troughs |
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Mergers and Acquisitions in the Steel Industry worldwide
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2006-2007 saw a flurry of mergers and acquisitions in the steel industry
Mittal Steel took over Arcelor in 2006 Tata Steel took over Corus in 2007 US steel took over several steel plants in Eastern Europe These mergers allowed individual steel producers to become more efficient, competitive and assert themselves against buyers and suppliers |
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Motives for Mergers and Acquisitions
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There are three broad types of motives for Mergers: Strategic, Financial and Managerial
Strategic Motives include Extension Consolidation Capabilities Financial Motives for Mergers include Financial Efficiency Tax efficiency Asset Stripping Managerial Motives for Mergers include Personal Ambition Bandwagon Effects |
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M&A Process
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Search to identify the acquisition target
Valuation of the target and negotiating the right price Integrate the new and old business together |
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Target Choice in M&A
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Two main criteria Used
Strategic Fit The extent to which the target firm strengthens and complements the acquiring firms strategy Strategic fit will relate to the original strategic motives of extension, consolidation and capabilities Organisational Fit Refers to the match between the management practices, cultural practices and staff characteristics between the target and acquiring firm. Large mismatches between the two are likely to cause significant integration problems |
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Valuation in M&A
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Most valuation techniques include financial analysis techniques like:
Pay back period Discounted cash flow technique Shareholder value analysis Premium for Control Winner’s Curse |
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Strategic Alliances
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Involves two or more organisations sharing resources and activities to pursue a strategy
Strategic Alliances involve a ‘Collective Strategy’ A collective strategy is about how the whole network of alliances of which an organisation is a member competes against rival network of alliances An important construct here is ‘Collaborative Advantage’ Collaborative advantage is about managing alliances better than competitors |
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Motives for Alliances
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Scale Alliances
Where organisations combine together to achieve scale Access Alliances Organisational ally to access the capabilities of the other Complementary Alliance Involves organisations in the similar points in the value network combining their distinctive resources so that to bolster each other’s particular gaps Collusive Alliance Organisations secretly collude together in order to increase their market power |
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Comparing Acquisitions, Alliances and Organic Development
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Urgency
Acquisitions and Alliances are fast ; Organic development is very slow Uncertainty Alliances works best, then acquisitions while organic development can lead to a lot of loss Type of Capabilities Acquisitions work when the capabilities are hard and can be very problematic when capabilities are soft Modularity of capabilities High level of modularity demands alliances or organic development, while an acquisition would work out to be very disadvantageous |
