MSC Strategy Presentation
mardino97
9GlobalMergersandAcquisitions.pptxChapter 9: Global Mergers and Acquisitions
The Choice
INTERNAL
SOLUTION
EXTERNAL
SOLUTION
Ownership
Partnership
Acquisition
Merger of
equals
Joint
Venture
Alliance
Minority
Investment
Control / Integration
Flexibility /Coordination/Cooperation
Business
Development
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Mergers & Acquisitions (M&A) are:
Increasingly numerous
Increasingly transnational
Across nearly all industries
Pressure for globalization, need for global reach
Pressure on costs, search for economies of scale and scope
More diverse technologies and standards; need for systemic innovations
Shorter product cycles: need to develop products & services fast
More segmented markets: need to develop multiple marketing competencies
WHY ?
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Global M&A Value 1990-2015
Source: data from UNCTAD
Database , 2016
| Year | Developed Economies | Developing Economies | |
| 1990 | 88,479 | 9,571 | |
| 1991 | 55,810 | 3,210 | |
| 1992 | 41,072 | 5,759 | |
| 1993 | 36,723 | 6,464 | |
| 1994 | 82,988 | 10,840 | |
| 1995 | 102,241 | 7,094 | |
| 1996 | 119,896 | 19,031 | |
| 1997 | 144,697 | 37,746 | |
| 1998 | 288,581 | 60,778 | |
| 1999 | 490,198 | 69,052 | |
| 2000 | 870,099 | 88,971 | |
| 2001 | 366,275 | 63,675 | |
| 2002 | 204,289 | 37,595 | |
| 2003 | 135,116 | 20,130 | |
| 2004 | 174,677 | 21,751 | |
| 2005 | 472,342 | 67,770 | |
| 2006 | 526,533 | 83,198 | |
| 2007 | 905,808 | 95,049 | |
| 2008 | 474,067 | 117,713 | |
| 2009 | 236,784 | 43,899 | |
| 2010 | 259,926 | 83,072 | |
| 2011 | 436,926 | 83,551 | |
| 2012 | 266,773 | 54,626 | |
| 2013 | 230,122 | 87,239 | |
| 2014 | 301,171 | 127,184 | |
| 2015 | 630,853 | 81,181 |
Values show in US$ millions
Strategic Value
Strategic Objectives
Value Creation Potential
What are the benefits of the M&A?
What value do we get from it?
Target Analysis
Fit analysis
Due Diligence
Valuation
Expectations
Is the deal feasible?
Negotiation and Design
Price
Financial architecture
Operational organization
Governance
How much do we pay?
How do we pay?
How do we organize and
manage?
AGREEMENT
Post-merger Integration
Transition
Integration
Evolution
How do we put the
companies together
How do we work?
DECISION-MAKING
IMPLEMENTATION
Framework for Analysis
of M&As
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Value Creation in M&A ?
Value of the
Acquirer
A
Value of the
Acquired
B
Value of B
minus acquisition
costs
Increased efficiency
Learning from B
Cost savings due to combined operations
Increased revenues due to joint marketing and complimentary products
Increased profitability from joint innovation
STAND ALONE VALUE
Value coming from the
acquired company
SYNERGIES VALUE
Value coming from the
combination of the
two companies
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What Makes for a High-quality Acquisition Decision?
The clarity of the strategic purpose
A shared set of priorities among key deciders
A detailed understanding of the source of benefits
Equal attention to the risks and how to manage them
A shared sense of time and timing
Source: From text of Hasperlagh &Jemison
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R&D
Procurement
Manufacturing
Marketing
General
COMPETENCES
ASSETS
How much can we gain from common sourcing, access to contacts, financial clout, etc.?
Do we have access to better people thanks to the combined entity?
How much can we gain from grouping factories, sharing distribution, sales forces,
IT systems, etc.?
What know-how can we transfer? What can we learn from the combined entity?
R&D
Procurement
Manufacturing
Marketing
General
The desirable outcome of M&As: Synergies
RESOURCES
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Negotiating parties in international acquisitions
COMPANY
A
Government
Ministries
Agencies
Shareholders
Employees
Partners
Banks
Institutions
Advisors
Negotiation
Government
Ministries
Agencies
Shareholders
Employees
Partners
COMPANY
B
Banks
Institutions
Advisors
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Post Acquisition Design
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Starting Point
The record on acquisitions stays mixed
Acquisitions go wrong for many reasons
However, firms still keep acquiring others
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Failure Rates of M&As
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THE ODDS ARE AGAINST SUCCESS
Potential M&A results
Is there a sound
strategy guiding the combination?
Is the combination implemented well?
Yes
No
Yes
No
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Pre-Merger
Lack of Strategic Fit (Different business logics)
Poor Due Diligence
Overestimation of synergies
Empire building
Politics
Deal
Excessive Premium
Bidding fever
Pressures
Post Merger
Lack of leadership
Poor communication
No integration plan
Unable to reduce anxiety
Too much emphasis on costs, not enough on growth
Too much inward looking
Departure of good people
Loss of key customers
Lack of trust
Clash of cultures
Lack of shared vision
Failure to show results fast
Inadequate funding
Political risk
Acquisitions go wrong for many reasons
The Post-merger Integration Phases
PMI Planning
Transition
phase
Integration
Phase
Deal
Negotiation
Implementation
(3 to 12 months)
Articulate vision
for the combined
company
Develop process
and principles
Create transition team and leadership
Gather data
Prepare a communication
plan
Prioritize actions
Set integration teams and
structure
Create performance milestones
for each team
Look for short-term wins
Reporting structure
Review, assess and implement recommended actions
Does the communication plan work?
Finalize integration
Finalize organization
End/transform integration teams
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THE POST DEAL SITUATION
High Emotional Stress and Anxiety - Employees - Suppliers
- Distributors - Community
Uncertainty about future direction
Synergies can still be very theoretical
Cultural divide: - Values - Mindset - Competitive and business logic - Experience
Stereotypes
Systems and processes compatibility
Personality clash
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People and Cultural issues
in M&As
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Who Does What?
Acquirer
Acquiree
Top
Middle
Low
Plan, Negotiate
Implement
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STRESS AND COMMITMENT CYCLES IN A MERGER
High
Low
Rumor
Announcement
Transition Planning
Transition Implement- ation
Post- transition
Commitment
Stress
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The “Merger Syndrome”
| Personal Reactions | Distractions from job performance Resistance to change Worst-case scenarios Feelings of fear, betrayal, and anger |
| Organizational Reactions | Crisis management Decreased communication (downward) Increased centralization (upward) |
| Cultural Reactions | Clash of cultures Us (superior) vs. them (inferior) syndrome Stereotypes Hostility and distrust |
Source: From discussions in Marks & Mirvis (1998). Joining forces: Making one plus one equal three in mergers, acquisitions, and alliances .
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How Do Cultural Differences Affect M&A Performance?
Theory predicts negative effect:
“Cultural Distance Hypothesis”: Difficulties, costs or risks associated with cross-cultural contact increase with growing cultural divergence between two individuals, groups or organizations.
“Cultural Fit”/“Acculturation” models suggest that the cultures of merging firms have to be similar to integrate successfully.
Empirical evidence is mixed:
Cultural differences had a negative effect on M&A performance in some scholarly studies, no effect in others, or even a positive effect in some others.
Certain studies found that cross-border M&As are often more successful than domestic M&As.
Stahl, Pucik, Evans & Mendenhall (2002). Human Resource Management in Cross-Border Mergers and Acquisitions. In Harzing & Van Ruysseveldt (Eds.), International Human Resource Management (2nd ed.). London: Sage.
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