MGT510:Module 13: External Growth Strategies and Implementation
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_MGT510_Module13_PPT_Ch14.ppt*
CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 14
External Growth Strategies:
Mergers, Acquisitions, and Alliances
- Mergers and Acquisitions
- Strategic Alliances
External Growth Strategies:
Mergers, Acquisitions, and Alliances
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Global M&A
1998-2018
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Chart1
| 1998 |
| 1999 |
| 2000 |
| 2001 |
| 2002 |
| 2003 |
| 2004 |
| 2005 |
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| 2018 |
Sheet1
| Value of M&A deals (S millions) | |
| 1998 | 2288 |
| 1999 | 3034 |
| 2000 | 3167 |
| 2001 | 1530 |
| 2002 | 1058 |
| 2003 | 1210 |
| 2004 | 1721 |
| 2005 | 2531 |
| 2006 | 3371 |
| 2007 | 4191 |
| 2008 | 2531 |
| 2009 | 1757 |
| 2010 | 2117 |
| 2011 | 2655 |
| 2012 | 2700 |
| 2013 | 2800 |
| 2014 | 4802 |
| 2015 | 4660 |
| 2016 | 3850 |
| 2017 | 3522 |
| 2018 | 3458 |
Are Mergers Successful?
- Evidence from Shareholder Returns:
- Small increase in the combined value of the 2 companies involved
- Gains flow (almost) entirely to shareholders of acquired companies
- Returns to shareholders of acquiring companies negative on average
- Evidence from Accounting Profits
- Diverse findings: “…the results from these accounting-based studies are all over the map”
- Key problem: separating the effects of the merger from the many other factors that influence firms’ profitability
- Diversity of M&A
- Lack of consistent findings reflects the vast diversity in types of mergers and characteristics of the firms involved
- Even when mergers categorized (e.g. horizontal, vertical, conglomerate) no consistent performance differences
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MERGERS AND ACQUISITIONS
Success and Failure among
Mergers and Acquisitions
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MERGERS AND ACQUISITIONS
| Successes | Failures |
| Exxon – Mobil | Daimler - Chrysler |
| Procter & Gamble – Gillette | AOL-Time Warner |
| Walt Disney Co. – Pixar | Royal Bank of Scotland - ABN AMRO |
| Tata Motor – Jaguar Land Rover | Hewlett Packard - Autonomy |
| Sirius – XM Radio | Bank of America – Countrywide |
| Cemex – RMC | Alcatel – Lucent |
| Bank of America – Merrill Lynch | Sprint - Nextel |
| Heinz–Kraft Foods | Sears – K Mart |
| Geely–Volvo | Microsoft–Nokia |
| Dell–EMC | News Corp.–MySpace |
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Motives for Mergers and Acquisitions
Managerial Motives
- Top management remuneration depends more on firm size than profitability
- Psychological rewards--M&As project power, confer CEO celebrity status
- Imitation: the fear of not participating in an industry’s merger wave
Financial Motives
- Stock market inefficiencies—acquire undervalued companies (Berkshire Hathaway-Heinz): use overvalued equity to acquire (AOL-Time Warner)
- Quest for tax savings—cross-border acquisitions to relocate to lower tax regime (Burger King-Tim Horton)
- Financial re-engineering: debt-financed acquisitions that reduce the acquired company’s cost of capital (KKR-RJR Nabisco)
Strategic Motives
- Horizontal M&A—economies of scale and market power (A-B Inbev-SAB Miller)
- Geographical extension M&A—to enter overseas market (Geely-Volvo)
- Vertical M&A—to acquire supplier or customer (Gencore-Xstrata)
- Diversifying M&A—to enter a new area of business (Amazon-Whole Foods)
MERGERS AND ACQUISITIONS
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Managing Mergers and Acquisitions
Challenges of Pre-merger Planning
- Careful identification of the goals of M&A
- Difficulties in estimating the benefits of M&A: on average cost savings overestimated by 25%, revenue increases by 70%
Challenges of Post-Merger integration
- Problems of integration: incompatible management systems; clash of cultures; adjustment difficulties by employees of acquired company
- Building acquisition capability—managing the learning process to ensure that acquisition experience builds capability
- Marching post-merger management to the strategic goals of the merger: leveraging the firm’s existing business model (e.g. Walt Disney and Pixar) vs. reinventing the business model (e.g. HP and Autonomy)
MERGERS AND ACQUISITIONS
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Types of Strategic Alliance
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Strategic Alliances:
Collaborative arrangements between two or more firms to pursue common goals
Alliance goals: technological, marketing and distribution, operational, standard setting, lobbying…
Formal (contractual agreements, written understandings) or Informal
Equity (partners take equity stakes in one another) or non-equity
Bilateral alliances (two partners), multilateral alliances (many partners), networks of alliances (Toyota supplier network; Apple “ecosystem”)
- Joint Ventures:
- Partners form a jointly-owned enterprise to pursue the goals of the alliance
STRATEGIC ALLIANCES
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SiRF Technology Holdings Inc
Kia Motors Corp
Uni-Pixel Inc
Ube Industries Ltd
Robert Bosch Stiftung GmbH
Sala Enterprises
Bglobal PLC
Universal Display Corp
IBM Corp
SAP AG
ARM Holdings PLC
Global Foundries Singapore
Panasonic Corp
NTT
NEC Corp
Thomson SA
KT Corp
Dreamworks Animation SKG Inc
Singapore
Telstra Corp Ltd
Intel Corp
Hynix Semiconductor Inc
Nanosys Inc
TLC Corp
SIP State Property Holding
Juniper Networks Inc
Infineon Technologies AG
Reactrix Systems Inc
Quintiles Transnational Corp
Sumitomo Chemical Co Ltd
Huawei Technologies Co Ltd
Russia
Samsung Electronics
Fujitsu Ltd
Source: Prof. Andrew Shipilov
Samsung Electronics’ Alliances, 2014
STRATEGIC ALLIANCES
ISUZU
SUZUKI
TOYOTA
IBC (built vans in the UK, 1989-98)
GM
NUMMI
(produced cars in
the US, 1984-2009)
Production JV; 10% ownership
40% owned
60%
owned
50% owned
50%
owned
SAAB
50% owned 1989-2000
FIAT
Technical collaboration, joint purch-asing & 20% ownership, 2000-6
FAW
JV producing light trucks in China
DAEWOO
50.9% owned; technical &
production collaboration
AVTOVAZ
JV produces
cars in Russia
SAIC
Production JVs in China
Indonesia, India
PEUGEOT
Joint development
& purchasing
HINDUSTAN MOTORS
Production JV in India, 1994-99
NISSAN
Product sourcing
General Motors’ International Alliances
STRATEGIC ALLIANCES
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Management Issues
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Motives:
To exploit complementarities among the resources and capabilities of different companies, e.g. airline alliances allow access to members’ route networks; Bulgari and Marriott combine to operate luxury hotels
These benefits include: Economizing on investment, Speed, Risk sharing, Learning (capability acquisition)
Challenges:
Need for relational capability: building trust, developing knowledge-sharing and coordination mechanisms
Managing the relationship: greatest benefits often involve greatest management challenges—e.g. cross-border alliances
Sharing of benefits: determined by
strategic intent of the partners (Which partner is clearer about what it wants from the alliance?)
appropriability of the contribution (Which partner’s resources and capabilities are easier to capture)
absorptive capacity (Which partner is the faster learner?
STRATEGIC ALLIANCES
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Do the firm’s resources and capabilities fit the needs of the current strategy?
YES
INTERNAL DEVELOPMENT
NO
Contract or inter-firm combination?
- Parties’ level of agreement over the value of the required resources
HIGH
LOW
Alliance or acquisition?
- Desired closeness with resource provider
CONTRACT
HIGH
LOW
ALLIANCE
ACQUISITION
STRATEGIC ALLIANCES
Choosing the Right Growth Path
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