Startegic Management Notes
Startegic Management Notes
Startegic Management Notes
2. The scorecard supplies a strategic feedback system. This system views the
strategies as hypotheses, and should be able to test, validate, and modify these
hypotheses.
3. Economies of scale
7. Tax considerations
9. Diversification of risk
Managing Mergers & Acquisitions
Mergers & Acquisitions can take place:
by purchasing assets
One is, the tender offer, is well - publicized bid made by a corporation
to all or a prescribed amount of the stock of another organizations.
Another option for one company is to purchase stock of the target
organization in the open market.
The acquiring company can also purchase the assets of the target
company.
Finally, the two firms may agree to an exchange of stock.
Managing Mergers &
Acquisitions
Several factors need to be avoided to
ensure a successful merger or acquisition.
These factors include:
1. Paying to much
2. Straying too far a field
3. Marrying disparate corporate cultures
4. Counting on key managers staying
5. Assuming that a boom market will not crash
6. Leaping before looking
7. Swallowing too large company
MERGERS AND ACQUISITIONS AND
STRATEGICMANAGEMENT
Initially, that is in the past decades mergers and acquisitions were merely
financial transactions aiming to control undervalued assets and the
target was an industry or business very different from the acquirers core
business. Cash flows merely sufficient for debt repayment was the main
goal. Mergers and acquisitions in recent times are very different.
Today, the typical merger or acquisition is quite strategic and operational
in nature. This implies that today, managers are not just buying
undervalued assets as discussed above but what they are buying are
installed customer bases, better distribution channels, greater
geographical boundaries, organizational competencies and a variety of
new talent.
All of these acquired factors in turn offer more strategic opportunities to
organizations so that they can gain an edge over their competitors
products and services. Such organizations are successful in consolidating
business units in an attempt to maximize revenues and share prices.
Therefore, Strategic Planning has long been emphasized by
organizations as an important tool leading to business success.
THE IMPORTANCE OF MERGERS AND
ACQUISITIONS
1. Mergers and acquisitions generally referred to as M&A are a
very important means whereby companies respond to the ever-
changing strategic environment.
2. Simply put when organizations have no chance of survival they
give themselves a last chance by merging or by being acquired.
3. The basic goal of businesses in todays world is to grow or
death is destined for you. Companies that are successful that is
those companies that are growing will snatch market share
from their competitors, will generate high economic profits and
provide reasonable returns to shareholders. On the other hand
companies that experience stagnant growth lose both their
customers and market share in addition to destroying
shareholder value. Mergers and acquisitions (M&A) play a
critical role in both sides of this cycle.
THE IMPORTANCE OF MERGERS AND
ACQUISITIONS
4. Mergers and acquisitions enable successful companies to
grow faster than their competition by combining the strengths
of the companies that have merged. On the other hand, they
lead to total extinction of the weaker companies by having
them acquired by other large and successful companies.
5. Mergers and acquisitions are a vital part of any healthy
economy and importantly, the primary way that companies are
able to provide returns to owners and investors. and also that
Merger and acquisitions are among the most powerful and
versatile growth tools employed by companies of all sizes and
in all industries.
6. This also signifies the importance of mergers and
acquisitions in that they are highly efficient growth tools
employed by organizations of all sizes and virtually in all
industries. This depicts as M&As being a global trend.
The Reasons behind Mergers and
Acquisitions
Companies and businesses use mergers and acquisitions for
many reasons. Some are mentioned below:
1. Mergers and acquisitions can pave ways for entering new markets,
Adding new product lines and increasing the distribution reachthat is
gaining a core competence to do more combinations.
2. Mergers and acquisitions are used to increase / enhance shareholder
value. This is done by:
. Cost reductions that are achieved by combining departments,
operations, and trimming the
. Workforce this cost reduction in turn leads to increased profitability.
. Increasing revenue by absorbing a major competitor and thereby
increasing market share.
. Cross-selling of products / services
. Tax savings that are achieved when a profitable company merges with
or takes over a money loser.
. Diversification that can stabilize earnings and boost investor
confidence.
The Reasons behind Mergers and
Acquisitions
3. Some mergers and acquisitions take place when
management of any business recognizes the need to
transform corporate identity.
4. Mergers and acquisitions are also used for risk
spreading
5. Acquisitions are undertaken to achieve vertical
and horizontal operational synergies where synergies
signify that the whole is greater than the parts.
6. Some mergers and acquisitions take place for
market dominance and reaching economies of scale.
Rationale behind Mergers and
Acquisitions
There are many rationales that determine the nature of a
proposed merger or acquisition. They are discussed as follows:
1. Strategic Rationale: To achieve a set of strategic objectives, the
strategic rationale plays an important role. Mergers and acquisitions
are usually not central to achieve strategic objectives, as usually there
are other alternatives available. A merger to secure control of capacity
in the chosen sector is an example.
2. Speculative Rationale: This rationale takes place when the
acquirer takes the acquired organization as a commodity. The
organization only will acquire another if it feels that it is a potential
target and that it could benefit from this acquisition. A major risk in
this type of acquisition is that the acquirer can do anything with the
other organization which is acquired. It could either split it up or sell it
in parts. The speculative rationale is very much vulnerable to changes
happening in the environment.
Rationale behind Mergers and
Acquisitions
3. Management Failure Rationale: Sometimes, mergers and
acquisitions may be forced due to failure on the managements side.
Strategies might me wrongfully aligned or market conditions may
change significantly while implementing the timescale. The result may
be that the initial strategy becomes misaligned.
4. Political Rationale: In todays world, the impact of political
influences is becoming increasingly significant with respect to mergers
and acquisitions. Mergers under this rationale usually take place on
governmental levels.
5. Business Redefining Rationale: Business redefinition is
sometimes possible through mergers and acquisitions. This is an
appropriate strategic rationale when an organizations mission and
vision grow stale due to for example, a major technological change.
When this is the case, the organization cannot immediately update its
technology by internal investments so the organization seeks to
acquire to redefine its business.
Life Cycle of Mergers and
Acquisitions
1. Almost all mergers and acquisitions begin with the inception phase. In this
phase, the process is initiated by the senior managers of the organization.
2. This step is usually followed by the feasibility stage where the financial and
land logistics area is analyzed. The merger or acquisition may be taking place for
the improvement of the financial position and market value. The feasibility phase
includes a detailed analysis of the financial characteristics of the proposed
merger while considering timescales, synergy generation and other variables.
3. During some point or towards the end of the feasibility phase, a proper
decision is made on how to take things to the next level. At this point, the
organization commits its self to the merger or acquisition and starts allocating
the funds and resources as needed.
4. The next phase is known as the pre-merger phase and it starts immediately
after the commitment to proceed. In this phase, the senior managers of both the
organizations enter into negotiations to form a structure of the new combined
organization. The services of external professional consultants are also needed in
this phase. After the negotiations are made, The deal takes form of a merger.
The contract sets out the rights, duties and obligations of both the organizations
under the terms of the deal. As soon as the contract is in place, the
implementation process begins. This process includes the mechanics of actually
making the merger happen.
Life Cycle of Mergers and Acquisitions
Stages involved in any M&A
Phase 2: Search and screen targets: This would include searching for the
possible apt takeover candidates. This process is mainly to scan for a good
strategic fit for the acquiring company.
Phase 5:Post merger integration: If all the above steps fall in place, there
is a formal announcement of the agreement of merger by both the
participating companies.
Reasons for the failure of M&A - Analyzed during the
stages of M&A
Poor strategic fit: Wide difference in objectives
and strategies of the company