Description
On this data related to chapter 7 acquisitions and restructuring strategies.
Slide
1
Copyright © 2004 South-Western
All rights reserved.
PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Chapter 7 Chapter 7 Chapter 7
Acquisitions and
Restructuring
Strategies
Slide
2
Copyright ©2004 South-Western. All rights reserved. 7–2
Types of Corporate & Grand Strategies
Consortia
Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Vertical Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
Slide
3
Copyright ©2004 South-Western. All rights reserved. 7–3
Mergers, Acquisitions, and Takeovers:
What are the Differences?
• Merger
Ø A strategy through which two firms agree to integrate their
operations on a relatively co-equal basis
• Acquisition
Ø A strategy through which one firm buys a controlling, or
100% interest in another firm with the intent of making the
acquired firm a subsidiary business within its portfolio
• Takeover
Ø A special type of acquisition when the target firm did not
solicit the acquiring firm’s bid for outright ownership
Slide
4
Copyright ©2004 South-Western. All rights reserved. 7–4
Acquisitions
Cost new product
development/increased
speed to market
Increased
diversification
Increased
market power
Avoiding excessive
competition
Overcoming
entry barriers
Learning and
developing new
capabilities
Lower risk
compared to
developing new
products
Reasons for
Acquisitions
and
Problems in
Achieving
Success
Adapted from Figure 7.1
Adapted from Figure 7.1
Slide
5
Copyright ©2004 South-Western. All rights reserved. 7–5
Acquisitions: Increased Market Power
• Factors increasing market power
ØWhen there is the ability to sell goods or services
above competitive levels
ØWhen costs of primary or support activities are
below those of competitors
ØWhen a firm’s size, resources and capabilities
gives it a superior ability to compete
• Acquisitions intended to increase market
power are subject to:
ØRegulatory review
ØAnalysis by financial markets
Slide
6
Copyright ©2004 South-Western. All rights reserved. 7–6
Acquisitions: Increased Market Power
(cont’d)
• Market power is increased by:
ØHorizontal acquisitions
ØVertical acquisitions
ØRelated acquisitions
v Concentric diversification
Slide
7
Copyright ©2004 South-Western. All rights reserved. 7–7
Strategies of Horizontal and Vertical Integration
• Horizontal integration
ØBased on growth via acquisition of one or more
similar firms operating at the same stage of the
production-marketing chain
ØInvolves eliminating competitors, providing
acquiring firm with access to new markets
• Vertical integration
ØInvolves acquiring firms
v To supply acquiring firm with inputs - backward
integration or
v Are customers for firm’s outputs - forward integration
Slide
8
Copyright ©2004 South-Western. All rights reserved. 7–8
Acquisitions or mergers of suppliers or customer
businesses are vertical integrations vertical integrations
Acquisitions or mergers of competing
businesses are horizontal integrations horizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
Vertical and Horizontal Integrations
Slide
9
Copyright ©2004 South-Western. All rights reserved. 7–9
Acquisitions: Overcoming Entry Barriers
• Factors associated with the market or with
the firms currently operating in it that
increase the expense and difficulty faced by
new ventures trying to enter that market
ØEconomies of scale
ØDifferentiated products
• Cross-Border Acquisitions
Slide
10
Copyright ©2004 South-Western. All rights reserved. 7–10
Acquisitions: Cost of New-Product
Development and Increased Speed to
Market
• Internal development of new products is
often perceived as high-risk activity
ØAcquisitions allow a firm to gain access to new
and current products that are new to the firm
ØReturns are more predictable because of the
acquired firms’ experience with the products
Slide
11
Copyright ©2004 South-Western. All rights reserved. 7–11
Acquisitions: Lower Risk Compared to
Developing New Products
• An acquisition’s outcomes can be estimated
more easily and accurately than the
outcomes of an internal product
development process
• Managers may view acquisitions as lowering
risk
Slide
12
Copyright ©2004 South-Western. All rights reserved. 7–12
Acquisitions
Reasons for
Acquisitions
and
Problems in
Achieving
Success
Adapted from Figure 7.1
Adapted from Figure 7.1
Integration
difficulties
Inadequate
evaluation of target
Large or
extraordinary debt
Inability to
achieve synergy
Too much
diversification
Managers overly
focused on
acquisitions
Too large
Slide
13
Copyright © 2004 South-Western. All rights reserved. 7–13
Table 7.1 Table 7.1
Attributes of
Successful
Acquisitions
Slide
14
Copyright ©2004 South-Western. All rights reserved. 7–14
Restructuring
• A strategy through which a firm changes its
set of businesses or financial structure
ØFailure of an acquisition strategy often precedes
a restructuring strategy
ØRestructuring may occur because of changes in
the external or internal environments
• Restructuring strategies:
ØDownsizing
ØDownscoping
ØLeveraged buyouts
Slide
15
Copyright ©2004 South-Western. All rights reserved. 7–15
Types of Restructuring: Downsizing
• A reduction in the number of a firm’s
employees and sometimes in the number of
its operating units
ØMay or may not change the composition of
businesses in the company’s portfolio
• Typical reasons for downsizing:
ØExpectation of improved profitability from cost
reductions
ØDesire or necessity for more efficient operations
Slide
16
Copyright ©2004 South-Western. All rights reserved. 7–16
Types of Restructuring: Downscoping
• A divestiture, spin-off or other means of
eliminating businesses unrelated to a firm’s
core businesses
• A set of actions that causes a firm to
strategically refocus on its core businesses
ØMay be accompanied by downsizing, but not
eliminating key employees from its primary
businesses
ØFirm can be more effectively managed by the top
management team
Slide
17
Copyright ©2004 South-Western. All rights reserved. 7–17
Divestiture and Liquidation Strategies
• Divestiture strategy
ØInvolves selling a firm or a major component of a firm
ØReasons for divestiture
v Partial mismatches between acquired firm and parent firm
v Corporate financial needs
v Government antitrust action
• Liquidation strategy
ØInvolves selling parts of a firm, usually for its tangible
asset value and not as a going concern
Slide
18
Copyright ©2004 South-Western. All rights reserved. 7–18
The Strategy of Bankruptcy
• Two approaches
ØLiquidation - Involves complete distribution of a
firm’s assets to creditors, most of whom receive
a small fraction of amount owed
ØReorganization - Involves creditors temporarily
freezing their claims while a firm reorganizes
and rebuilds its operations more profitably
• Advantage of a reorganization bankruptcy
ØProactive option offering maximum repayment of
a firm’s debt in the future if a recovery strategy
is successful
Slide
19
Copyright ©2004 South-Western. All rights reserved. 7–19
Restructuring: Leveraged Buyouts
• A restructuring strategy whereby a party
buys all of a firm’s assets in order to take
the firm private
ØSignificant amounts of debt are usually incurred
to finance the buyout
• Can correct for managerial mistakes
ØManagers making decisions that serve their own
interests rather than those of shareholders
• Can facilitate entrepreneurial efforts and
strategic growth
Slide
20
Copyright ©2004 South-Western. All rights reserved. 7–20
Restructuring and Outcomes
Adapted from Figure 7.2 Adapted from Figure 7.2
Slide
21
Copyright ©2004 South-Western. All rights reserved. 7–21
Declining
sales or
margins
Imminent
bankruptcy
Low
High
Cost
reduction
Asset
reduction
Efficiency
maintenance
Entrepreneurial
reconfiguration
S
t
a
b
i
l
i
t
y
R
e
c
o
v
e
r
y
Internal
factors
External
factors
Turnaround situation Turnaround response
Cause Severity Retrenchment phase Recovery phase
(operating)
(strategic)
A Model of the Turnaround Process
Copyright © 2004 South-Western. All rights reserved. 7–22
Grand Strategy Selection Matrix
Overcome weaknesses
Maximize strengths
External
(acquisition
or merger for
resource
capability)
Internal
(redirected
resources
within the
firm)
Turnaround or
retrenchment
Divestiture
Liquidation
Vertical integration
Conglomerate diversification
Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Concentric diversification
Joint venture
I II
IV III
Copyright © 2004 South-Western. All rights reserved. 7–23
Model of Grand Strategy Clusters
Rapid market growth
Slow market growth
Weak
competitive
position
Strong
competitive
position
1. Concentrated
growth
2. Vertical integration
3. Concentric
diversification
1. Reformulation of
concentrated growth
2. Horizontal integration
3. Divestiture
4. Liquidation
1. Concentric
diversification
2. Conglomerate
diversification
3. Joint venture
1. Turnaround or retrenchment
2. Concentric diversification
3. Conglomerate diversification
4. Divestiture
5. Liquidation
II I
III IV
doc_557821131.pdf
On this data related to chapter 7 acquisitions and restructuring strategies.
Slide
1
Copyright © 2004 South-Western
All rights reserved.
PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Chapter 7 Chapter 7 Chapter 7
Acquisitions and
Restructuring
Strategies
Slide
2
Copyright ©2004 South-Western. All rights reserved. 7–2
Types of Corporate & Grand Strategies
Consortia
Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Vertical Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
Slide
3
Copyright ©2004 South-Western. All rights reserved. 7–3
Mergers, Acquisitions, and Takeovers:
What are the Differences?
• Merger
Ø A strategy through which two firms agree to integrate their
operations on a relatively co-equal basis
• Acquisition
Ø A strategy through which one firm buys a controlling, or
100% interest in another firm with the intent of making the
acquired firm a subsidiary business within its portfolio
• Takeover
Ø A special type of acquisition when the target firm did not
solicit the acquiring firm’s bid for outright ownership
Slide
4
Copyright ©2004 South-Western. All rights reserved. 7–4
Acquisitions
Cost new product
development/increased
speed to market
Increased
diversification
Increased
market power
Avoiding excessive
competition
Overcoming
entry barriers
Learning and
developing new
capabilities
Lower risk
compared to
developing new
products
Reasons for
Acquisitions
and
Problems in
Achieving
Success
Adapted from Figure 7.1
Adapted from Figure 7.1
Slide
5
Copyright ©2004 South-Western. All rights reserved. 7–5
Acquisitions: Increased Market Power
• Factors increasing market power
ØWhen there is the ability to sell goods or services
above competitive levels
ØWhen costs of primary or support activities are
below those of competitors
ØWhen a firm’s size, resources and capabilities
gives it a superior ability to compete
• Acquisitions intended to increase market
power are subject to:
ØRegulatory review
ØAnalysis by financial markets
Slide
6
Copyright ©2004 South-Western. All rights reserved. 7–6
Acquisitions: Increased Market Power
(cont’d)
• Market power is increased by:
ØHorizontal acquisitions
ØVertical acquisitions
ØRelated acquisitions
v Concentric diversification
Slide
7
Copyright ©2004 South-Western. All rights reserved. 7–7
Strategies of Horizontal and Vertical Integration
• Horizontal integration
ØBased on growth via acquisition of one or more
similar firms operating at the same stage of the
production-marketing chain
ØInvolves eliminating competitors, providing
acquiring firm with access to new markets
• Vertical integration
ØInvolves acquiring firms
v To supply acquiring firm with inputs - backward
integration or
v Are customers for firm’s outputs - forward integration
Slide
8
Copyright ©2004 South-Western. All rights reserved. 7–8
Acquisitions or mergers of suppliers or customer
businesses are vertical integrations vertical integrations
Acquisitions or mergers of competing
businesses are horizontal integrations horizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
Vertical and Horizontal Integrations
Slide
9
Copyright ©2004 South-Western. All rights reserved. 7–9
Acquisitions: Overcoming Entry Barriers
• Factors associated with the market or with
the firms currently operating in it that
increase the expense and difficulty faced by
new ventures trying to enter that market
ØEconomies of scale
ØDifferentiated products
• Cross-Border Acquisitions
Slide
10
Copyright ©2004 South-Western. All rights reserved. 7–10
Acquisitions: Cost of New-Product
Development and Increased Speed to
Market
• Internal development of new products is
often perceived as high-risk activity
ØAcquisitions allow a firm to gain access to new
and current products that are new to the firm
ØReturns are more predictable because of the
acquired firms’ experience with the products
Slide
11
Copyright ©2004 South-Western. All rights reserved. 7–11
Acquisitions: Lower Risk Compared to
Developing New Products
• An acquisition’s outcomes can be estimated
more easily and accurately than the
outcomes of an internal product
development process
• Managers may view acquisitions as lowering
risk
Slide
12
Copyright ©2004 South-Western. All rights reserved. 7–12
Acquisitions
Reasons for
Acquisitions
and
Problems in
Achieving
Success
Adapted from Figure 7.1
Adapted from Figure 7.1
Integration
difficulties
Inadequate
evaluation of target
Large or
extraordinary debt
Inability to
achieve synergy
Too much
diversification
Managers overly
focused on
acquisitions
Too large
Slide
13
Copyright © 2004 South-Western. All rights reserved. 7–13
Table 7.1 Table 7.1
Attributes of
Successful
Acquisitions
Slide
14
Copyright ©2004 South-Western. All rights reserved. 7–14
Restructuring
• A strategy through which a firm changes its
set of businesses or financial structure
ØFailure of an acquisition strategy often precedes
a restructuring strategy
ØRestructuring may occur because of changes in
the external or internal environments
• Restructuring strategies:
ØDownsizing
ØDownscoping
ØLeveraged buyouts
Slide
15
Copyright ©2004 South-Western. All rights reserved. 7–15
Types of Restructuring: Downsizing
• A reduction in the number of a firm’s
employees and sometimes in the number of
its operating units
ØMay or may not change the composition of
businesses in the company’s portfolio
• Typical reasons for downsizing:
ØExpectation of improved profitability from cost
reductions
ØDesire or necessity for more efficient operations
Slide
16
Copyright ©2004 South-Western. All rights reserved. 7–16
Types of Restructuring: Downscoping
• A divestiture, spin-off or other means of
eliminating businesses unrelated to a firm’s
core businesses
• A set of actions that causes a firm to
strategically refocus on its core businesses
ØMay be accompanied by downsizing, but not
eliminating key employees from its primary
businesses
ØFirm can be more effectively managed by the top
management team
Slide
17
Copyright ©2004 South-Western. All rights reserved. 7–17
Divestiture and Liquidation Strategies
• Divestiture strategy
ØInvolves selling a firm or a major component of a firm
ØReasons for divestiture
v Partial mismatches between acquired firm and parent firm
v Corporate financial needs
v Government antitrust action
• Liquidation strategy
ØInvolves selling parts of a firm, usually for its tangible
asset value and not as a going concern
Slide
18
Copyright ©2004 South-Western. All rights reserved. 7–18
The Strategy of Bankruptcy
• Two approaches
ØLiquidation - Involves complete distribution of a
firm’s assets to creditors, most of whom receive
a small fraction of amount owed
ØReorganization - Involves creditors temporarily
freezing their claims while a firm reorganizes
and rebuilds its operations more profitably
• Advantage of a reorganization bankruptcy
ØProactive option offering maximum repayment of
a firm’s debt in the future if a recovery strategy
is successful
Slide
19
Copyright ©2004 South-Western. All rights reserved. 7–19
Restructuring: Leveraged Buyouts
• A restructuring strategy whereby a party
buys all of a firm’s assets in order to take
the firm private
ØSignificant amounts of debt are usually incurred
to finance the buyout
• Can correct for managerial mistakes
ØManagers making decisions that serve their own
interests rather than those of shareholders
• Can facilitate entrepreneurial efforts and
strategic growth
Slide
20
Copyright ©2004 South-Western. All rights reserved. 7–20
Restructuring and Outcomes
Adapted from Figure 7.2 Adapted from Figure 7.2
Slide
21
Copyright ©2004 South-Western. All rights reserved. 7–21
Declining
sales or
margins
Imminent
bankruptcy
Low
High
Cost
reduction
Asset
reduction
Efficiency
maintenance
Entrepreneurial
reconfiguration
S
t
a
b
i
l
i
t
y
R
e
c
o
v
e
r
y
Internal
factors
External
factors
Turnaround situation Turnaround response
Cause Severity Retrenchment phase Recovery phase
(operating)
(strategic)
A Model of the Turnaround Process
Copyright © 2004 South-Western. All rights reserved. 7–22
Grand Strategy Selection Matrix
Overcome weaknesses
Maximize strengths
External
(acquisition
or merger for
resource
capability)
Internal
(redirected
resources
within the
firm)
Turnaround or
retrenchment
Divestiture
Liquidation
Vertical integration
Conglomerate diversification
Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Concentric diversification
Joint venture
I II
IV III
Copyright © 2004 South-Western. All rights reserved. 7–23
Model of Grand Strategy Clusters
Rapid market growth
Slow market growth
Weak
competitive
position
Strong
competitive
position
1. Concentrated
growth
2. Vertical integration
3. Concentric
diversification
1. Reformulation of
concentrated growth
2. Horizontal integration
3. Divestiture
4. Liquidation
1. Concentric
diversification
2. Conglomerate
diversification
3. Joint venture
1. Turnaround or retrenchment
2. Concentric diversification
3. Conglomerate diversification
4. Divestiture
5. Liquidation
II I
III IV
doc_557821131.pdf