Mergers and acquisitions

rachael abercrombie
Mind Map by rachael abercrombie, updated more than 1 year ago More Less
rachael abercrombie
Created by rachael abercrombie almost 4 years ago
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Mind Map on Mergers and acquisitions, created by rachael abercrombie on 12/22/2015.

Resource summary

Mergers and acquisitions
1 M&A is a type of foreign direct investment (FDI): Strategy in which the firm establishes a physical presence abroad by acquiring productive assets such as capital, technology, labor, land, plant, and equipment
1.1 A merger is the combination of two previously separate organisations, typically as more or less equal partners
1.1.1 Mergers and acquisitions (M&A) are of great practical importance in strategic, monetary, and social terms (Gomes 2013)
1.1.1.1 An acquisition involves one firm taking over the ownership (‘equity’) of another, hence the alternative term ‘takeover’
1.1.1.1.1 Europe in 1994 had mergers amounting to $138 billion (Brouthers 1998)
1.1.1.1.1.1 In 2014 - 1,338 M&A deals were done through Europe worth £94b. M&A in Europe now worth £540 b
2 Types of M&A
2.1 Geographical scope
2.1.1 Domestic – when the target and the acquire are established in the same country
2.1.1.1 International – when the acquirer and the target firm have headquarters located in different home countries
2.2 Mood of deal
2.2.1 Friendly – when the target and the acquirer agree the terms together
2.2.1.1 Hostile – when the management team of the target firm disagrees with the acquisition
2.2.1.1.1 95% of M&A are friendly (Sapouna 2013)
2.3 Functional roles
2.3.1 Horizontal – M&A is usually between two companies in the same business sector
2.3.1.1 Vertical M&A represents the buying of supplier of a business
2.3.1.1.1 Conglomerate M&A is the third from M&A process which deals the merger between two irrelevant companies
3 M&A Motives
3.1 Merger and acquisition literature suggests that managers will have various motives for mergers. (Brouthers 1998)
3.1.1 Economic/financial motives
3.1.1.1 Increased probability
3.1.1.1.1 Financial efficiency
3.1.1.1.1.1 Tax efficiency
3.1.1.1.1.1.1 Risk spreading
3.1.1.1.1.1.1.1 Create shareholder value
3.2 Personal motives
3.2.1 Managerial hubris
3.2.1.1 Enhance managerial prestige
3.2.1.1.1 Bandwagon effect
3.3 Strategic moves
3.3.1 Extension in a new geographic market
3.3.1.1 Developing capabilities
3.3.1.1.1 Pursuit of market power
3.3.1.1.1.1 Increase bargaining power against suppliers
3.3.1.1.1.1.1 Acquisition of competitor
3.3.1.1.1.1.1.1 Acquisition of raw materials
4 Mergers and Acquisition Process
4.1 Before Merger and acquisition
4.1.1 Choice and evaluation of strategic partner Once the need for an M&A is established, the first step that the acquiring firm must accomplish is to choose a strategic partner in terms of its strengths and weaknesses (Gomes 2013)
4.1.1.1 Pay the right price form of payment. A substantial amount of research from a finance perspective has indicated that “paying too much” is a major cause of failure (Gomes 2013)
4.1.1.1.1 Size, mismatches and organisation IBM, from 2002 to 2009, it acquired 70 companies for about $14 billion. By pushing their products through a global sales force, IBM estimates it increased their revenues by almost 50 percent in the first two years after each acquisition and an average of more than 10 percent in the next three years.
4.1.1.1.1.1 Overall strategy and accumulated experience on M and A A considerable amount of research shows that companies with an overall strategy and experience of M&A are more successful than those that are less experienced or merely react to a M&A opportunity (Gomes 2013) Tata used research to look into failed M&A before merging with Jaguar Land Rover in 2008
4.1.1.1.1.1.1 Communication before the M & A
4.1.1.1.1.1.1.1 Future compensation policy
4.1.1.1.2 In 1994, Quaker Oats acquired new company, Snapple, for $1.7 billion. Fresh from their success with Gatorade, Quaker Oats wanted to make Snapple drinks their next success story. Despite criticisms from Wall Street that they paid $1 billion too much for the fruity drink company, Quaker Oats dove head-first into a new marketing campaign and set out to bring Snapple to every grocery store and chain restaurant they could. However, their efforts failed miserably. Snapple had found its niche in small, independent stores and gas stations, backed by a quirky and fun advertising strategy. Quaker didn’t seem to grasp the Snapple identity and after just 27 months, sold Snapple for $300 million
4.2 Post merger and acquisition
4.2.1 Integration strategies
4.2.1.1 Implementation management team The acquisition process is so complex that managers often spend most of their time concentrating on acquisition issues related to this period of transition, while day to day business activities may be disregarded (Gomes 2013)
4.2.1.1.1 Speed of implementation
4.2.1.1.1.1 HR management
4.2.1.1.1.1.1 PMI coordination Team and disregard of day to day business activities
4.2.1.1.1.1.1.1 Communication during implementation Communications play a central part in the acquisition process (Gomes 2013) In cross border acquisition situation, communications have to be handled especially carefully since cultural differences usually add an extra degree of difficulty to the process (Gomes 2013)
4.2.1.1.1.1.1.1.1 Managing corporate and national cultural differences. In terms of completing an M&A transaction, the legal and financial aspects are generally well handled, but managers often fail to consider thoroughly how the new organization will be operated and managed after the deal (Gomes 2013)
4.2.1.1.1.1.1.1.1.1 In 2008, TATA finalised the deal and acquired Jaguar Land Rover culture was respected, trust was inspired and effective communication took place, all management and personal were left to their own devices and Tata only intervened when asked. Since the acquisition turnover of JLR has increased from £5m to nearly £14m in 2012
4.2.1.1.1.1.1.1.2 When German Daimler (the makers of Mercedes-Benz) merged with American company Chrysler in the late 1990s, it was called a “merger of equals.” Both parties went into this deal on friendly terms as Chrysler wanted access to the European market and Mercedes wanted to offer a range of more affordable cars. A few years later it was being called a “fiasco.” Due to cultural differences. Differences between the companies included their level of formality, philosophy on issues such as pay and expenses, and operating styles. In 2007, Daimler sold Chrysler to Cerberus Capital Management for $6 billion.
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