Lecture 6- Mergers, acquisitions & alliances

One strategic method that organisations can pursue or consider is [blank_start]organic development[blank_end]. This is strategy pursued by [blank_start]building[blank_end] on & [blank_start]developing[blank_end] an organisation’s own [blank_start]capabilities[blank_end]

One advantage of organic development is [blank_start]knowledge[blank_end] & [blank_start]learning[blank_end] can be enhanced

Another advantage of organic development is spreading [blank_start]investment[blank_end] over time which means it is [blank_start]easier to finance[blank_end]

Third advantage of organic development is no [blank_start]availability[blank_end] constraints so there is no need to search for [blank_start]suitable partners[blank_end] or [blank_start]acquisition targets[blank_end]

Fourth advantage of organic development is [blank_start]strategic[blank_end] independence so there is less need to make [blank_start]compromises[blank_end] or accept [blank_start]strategic constraints[blank_end]

Fifth advantage of organic development is [blank_start]culture management[blank_end] so [blank_start]new[blank_end] activities with less [blank_start]risk[blank_end] of [blank_start]culture[blank_end] clash

[blank_start]Mergers[blank_end] & [blank_start]acquisitions[blank_end] are concerned with [blank_start]combination[blank_end] of [blank_start]two[blank_end] (or [blank_start]more[blank_end]) organisations

Merger- [blank_start]Combination[blank_end] of [blank_start]two[blank_end] previously [blank_start]separate[blank_end] organisations in order to form [blank_start]new company[blank_end]

Acquisition is achieved by purchasing [blank_start]majority of shares[blank_end] in target company. Friendly acquisition is where target’s management [blank_start]recommend[blank_end] accepting acquirer’s [blank_start]deal[blank_end]. Hostile acquisition is where [blank_start]target’s[blank_end] management refuse acquirer’s [blank_start]offer[blank_end]

Motives for mergers & acquisitions can be [blank_start]strategic[blank_end], [blank_start]financial[blank_end] or [blank_start]managerial[blank_end]

One strategic motive for mergers & acquisitions is [blank_start]extension[blank_end]. This is [blank_start]reach[blank_end] of firm in terms of [blank_start]geography[blank_end], [blank_start]products[blank_end] or [blank_start]markets[blank_end]

Another strategic motive for mergers & acquisitions is [blank_start]consolidation[blank_end]. This is increasing [blank_start]scale[blank_end], [blank_start]efficiency[blank_end] & [blank_start]market power[blank_end]

Third strategic motive for mergers & acquisitions is [blank_start]capabilities[blank_end]. This is enhancing [blank_start]technological[blank_end] know-how (or other [blank_start]capabilities[blank_end])

One financial motive for mergers & acquisitions is [blank_start]financial efficiency[blank_end]. Company with [blank_start]strong[blank_end] balance sheet ([blank_start]cash rich[blank_end]) may acquire/merge with company with [blank_start]weak[blank_end] balance sheet ([blank_start]high debt[blank_end])

Another financial motive for mergers & acquisitions is [blank_start]tax efficiency[blank_end]. This involves [blank_start]reducing[blank_end] combined [blank_start]tax[blank_end] burden

Third financial motive for mergers & acquisitions is [blank_start]asset stripping[blank_end] or [blank_start]unbundling[blank_end]. This involves [blank_start]selling[blank_end] off bits of acquired company to maximise [blank_start]asset values[blank_end]

One managerial motive for mergers & acquisitions is [blank_start]personal ambition[blank_end]. [blank_start]Financial[blank_end] incentives tied to short-term [blank_start]growth[blank_end] or [blank_start]share price[blank_end] targets, boosting personal [blank_start]reputations[blank_end] & giving friends & colleagues greater [blank_start]responsibility[blank_end] or better [blank_start]jobs[blank_end] (& therefore helping to strengthen their [blank_start]loyalty[blank_end])

Another managerial motive for mergers & acquisitions is [blank_start]Bandwagon effects[blank_end]. Managers may be branded as [blank_start]conservative[blank_end] if they don’t follow an M&A trend, shareholder [blank_start]pressure[blank_end] to merge or acquire & company may itself become [blank_start]takeover target[blank_end]