Description
Mergers & Acquisitions - Types
MERGERS & ACQUISITIONS
I. MERGERS
TYPES OF MERGERS
1.
HORIZONTAL MERGERS
2. VERTICAL MERGERS
3. CONCENTRIC MERGERS
4. CONGLOMERATE MERGERS
REASONS FOR MERGERS
FOR THE BUYER
1. 2. 3. 4. 5. 6.
To increase the value of the Organisation’s stock.
To increase the growth rate & make a good investment.
To improve stability of earnings & sales. To balance, complete or diversify product line. To reduce competition. To acquire needed resources quickly.
7.
8.
To avail tax concessions & benefits.
To take advantage of synergy.
FOR THE SELLER
1.
To increase the value of owner’s stock & investment.
2. To increase growth rate.
3. To acquire resources to stabilise operations.
4. To benefit from tax legislations.
5. To deal with top management succession problems.
4 ISSUES IN MERGERS
? Strategic Issues ? Financial Issues
? Managerial Issues
? Legal Issues
WHY MERGERS FAIL?
? Failure to establish objectives for an acquisition which fit
the overall corporate strategy.
? Failure to compare acquisitions with alternative means. ? Insufficient attention to the financial details of mergers. ? Insufficient familiarity on the part of acquiring
management with the business of the target firm.
? Insufficient attention to the post-merger planning.
II. ACQUISITIONS
SIX STEPS PROCEDURE FOR MAKING ACQUISITIONS
1.
Spell out the Objective.
2. Indicate how the objective would be achieved.
3. Assess Managerial quality.
4. Check the compatibility of Business Styles.
5. Anticipate & solve problems early.
6. Treat people with Dignity & Concern
DRUCKER’S 5 COMMANDMENTS FOR SUCCESSFUL ACQUISITIONS
1.
Acquisitions must contribute something to the acquired
company.
2. 3.
A common core of unity is required. Acquirer must respect the acquired company.
4.
Within a year or so, acquiring company must be able to
provide top management to the acquired company. Within the first year of merger, management in both companies should receive promotions across the company.
5.
REASONS FOR TAKE-OVER
? Quick Growth ? Diversification
? Establishing oneself as an Industrialist
? Reducing Competition
? Increasing market share
? Creating goodwill by taking over sick unit
PROS & CONS OF TAKE-OVERS
PROS
? Ensure accountability by Management. ? Offer growth opportunities.
? Create mobility of resources.
? Avoid gestation period & delays in new projects.
? Offer a chance to sick units to survive.
? Open up alternatives for selective divestments.
CONS
? Professionalism replaced by money power. ? Takeovers not creating new/ real assets.
? Interest of minority shareholders not protected.
? Avoidable stress & strains.
WHY ACQUISITIONS FAIL?
1.
Difficulties in integrating different cultures.
2. Overestimation of potential economic benefits from
an acquisition.
3. Expensive acquisitions.
4. Inadequate pre-screening of acquisition targets.
WHY ACQUISITIONS FAIL … (contd)
4.
Inadequate pre-screening of acquisition targets.
Based on research of acquisitions made by 20 different companies, Philippe Haspeslagh of INSEAD and David Jemison of University of Texas concluded that one of the reasons why acquisitions fail is management’s inadequate attention to the pre-acquisition screening. As a result, once the acquisition is completed, many organisations discover that instead of buying a well-run business, they have purchased a “Dud” or a troubled organisation. Example: Experience of Xerox in purchasing the Crum & Forster Insurance business in the early 1980s. Only after the acquisition was completed did Xerox learn that Crum & Forster was a high cost insurance provider.
THANK YOU FOR LISTENING
doc_137386036.pptx
Mergers & Acquisitions - Types
MERGERS & ACQUISITIONS
I. MERGERS
TYPES OF MERGERS
1.
HORIZONTAL MERGERS
2. VERTICAL MERGERS
3. CONCENTRIC MERGERS
4. CONGLOMERATE MERGERS
REASONS FOR MERGERS
FOR THE BUYER
1. 2. 3. 4. 5. 6.
To increase the value of the Organisation’s stock.
To increase the growth rate & make a good investment.
To improve stability of earnings & sales. To balance, complete or diversify product line. To reduce competition. To acquire needed resources quickly.
7.
8.
To avail tax concessions & benefits.
To take advantage of synergy.
FOR THE SELLER
1.
To increase the value of owner’s stock & investment.
2. To increase growth rate.
3. To acquire resources to stabilise operations.
4. To benefit from tax legislations.
5. To deal with top management succession problems.
4 ISSUES IN MERGERS
? Strategic Issues ? Financial Issues
? Managerial Issues
? Legal Issues
WHY MERGERS FAIL?
? Failure to establish objectives for an acquisition which fit
the overall corporate strategy.
? Failure to compare acquisitions with alternative means. ? Insufficient attention to the financial details of mergers. ? Insufficient familiarity on the part of acquiring
management with the business of the target firm.
? Insufficient attention to the post-merger planning.
II. ACQUISITIONS
SIX STEPS PROCEDURE FOR MAKING ACQUISITIONS
1.
Spell out the Objective.
2. Indicate how the objective would be achieved.
3. Assess Managerial quality.
4. Check the compatibility of Business Styles.
5. Anticipate & solve problems early.
6. Treat people with Dignity & Concern
DRUCKER’S 5 COMMANDMENTS FOR SUCCESSFUL ACQUISITIONS
1.
Acquisitions must contribute something to the acquired
company.
2. 3.
A common core of unity is required. Acquirer must respect the acquired company.
4.
Within a year or so, acquiring company must be able to
provide top management to the acquired company. Within the first year of merger, management in both companies should receive promotions across the company.
5.
REASONS FOR TAKE-OVER
? Quick Growth ? Diversification
? Establishing oneself as an Industrialist
? Reducing Competition
? Increasing market share
? Creating goodwill by taking over sick unit
PROS & CONS OF TAKE-OVERS
PROS
? Ensure accountability by Management. ? Offer growth opportunities.
? Create mobility of resources.
? Avoid gestation period & delays in new projects.
? Offer a chance to sick units to survive.
? Open up alternatives for selective divestments.
CONS
? Professionalism replaced by money power. ? Takeovers not creating new/ real assets.
? Interest of minority shareholders not protected.
? Avoidable stress & strains.
WHY ACQUISITIONS FAIL?
1.
Difficulties in integrating different cultures.
2. Overestimation of potential economic benefits from
an acquisition.
3. Expensive acquisitions.
4. Inadequate pre-screening of acquisition targets.
WHY ACQUISITIONS FAIL … (contd)
4.
Inadequate pre-screening of acquisition targets.
Based on research of acquisitions made by 20 different companies, Philippe Haspeslagh of INSEAD and David Jemison of University of Texas concluded that one of the reasons why acquisitions fail is management’s inadequate attention to the pre-acquisition screening. As a result, once the acquisition is completed, many organisations discover that instead of buying a well-run business, they have purchased a “Dud” or a troubled organisation. Example: Experience of Xerox in purchasing the Crum & Forster Insurance business in the early 1980s. Only after the acquisition was completed did Xerox learn that Crum & Forster was a high cost insurance provider.
THANK YOU FOR LISTENING
doc_137386036.pptx