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Mergers, Acquisitions, and Restructuring

This document discusses different types of mergers and acquisitions. It outlines horizontal acquisitions where companies compete in the same industry, vertical acquisitions which integrate suppliers or distributors, and related acquisitions of companies in highly related industries. The key reasons for acquisitions are to gain market power, overcome barriers, develop new products faster, and achieve diversification. However, acquisitions often fail due to integration difficulties, debt loads, inability to achieve synergies, or managers focusing too much on acquisitions rather than innovation. Effective acquisitions have complementary assets, friendly terms that facilitate integration, thorough due diligence, financial flexibility, and support innovation.

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Hasib Mahmud
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8 views3 pages

Mergers, Acquisitions, and Restructuring

This document discusses different types of mergers and acquisitions. It outlines horizontal acquisitions where companies compete in the same industry, vertical acquisitions which integrate suppliers or distributors, and related acquisitions of companies in highly related industries. The key reasons for acquisitions are to gain market power, overcome barriers, develop new products faster, and achieve diversification. However, acquisitions often fail due to integration difficulties, debt loads, inability to achieve synergies, or managers focusing too much on acquisitions rather than innovation. Effective acquisitions have complementary assets, friendly terms that facilitate integration, thorough due diligence, financial flexibility, and support innovation.

Uploaded by

Hasib Mahmud
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Chapter #8

Merger
Two firms

Why firms use acquisition strategies?


agree

to integrate their

operations on a relatively co-equal basis


Acquisition
One firm buys a controlling, 100 percent
interest in another firm with the intent of
making

the

acquired

firm

subsidiary

business within its portfolio.

1. Increased market power


2. Overcoming entry barriers
3. Cost of new product development and
increased speed to market
4. Lower risk compared to developing new
products
5. Increased diversification

Takeover
Special type of acquisition strategy
wherein the target firm did not solicit the

6. Reshaping firms competitive advantage


7. Learning and developing new capabilities

acquiring firm's bid


Hostile Takeover:

Unfriendly takeover

that is unexpected and undesired by the


target firm
Types of acquisition

Seven
problems
Acquisition Success

Horizontal Acquisitions

Acquirer and acquired companies compete


in

the

same

industry

i.e.,

McDonalds

acquisition of Boston Market

Vertical Acquisitions

Integration difficulties
Inadequate evaluation of target
Large or extraordinary debt
Inability to achieve synergy
Too much diversification
Managers
overly
focused

acquisitions
Too large

additional controls over parts of the value Three types of LBOs


chain

i.e.,

Walt

Disney

Companys

acquisition of Fox Family Worldwide.

Related Acquisitions

Firm acquires another company in a highly

Achieving

Firm acquires a supplier or distributor of one


or more of its goods or services; leads to

in

Management buyouts
Employee buyouts
Whole-firm buyouts

on

related industry

Attributes of effective acquisitions

Three restructuring strategies

1. Downsizing
Reduction in number of firms employees
(and possibly number of operating units)
that may or may not change the composition
of businesses in the company's portfolio
2. Down scoping
Eliminating businesses unrelated to firms
core businesses through divesture, spin-off,
or some other means
3. Leveraged buyouts (LBOs)
One party buys all of a firm's assets in order
to take the firm private (or no longer trade
the firm's shares publicly)

Complementary assets or resources


Friendly acquisitions facilitate integration
of firms
Effective
due-diligence
process
(assessment of target firm by acquirer,
such as books, culture, etc.)
Financial slack
Low debt position
Innovation
Flexibility and adaptability

Restructuring defined
Firm changes set of businesses or financial
structure

Why LBOs?
Protection against a capricious financial
market
Allows owners to focus on developing
innovations/bring them to market
A form of firm rebirth to facilitate
entrepreneurial efforts
Restructuring Outcomes
Short-term
Reduced costs: labor and debt Emphasis on
strategic controls
Long-term
Loss of human capital
Performance: higher/lower
Higher risk

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