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Mergers and Acquisitions
Hema A. KrishnanProfessor of Strategy and Global BusinessXavier UniversityCincinnatiOH 45207, U.S.A.
Presented at the GRG School of Management studiesCoimbatore, IndiaJuly 2015
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Theory Review
The theory slides and some of the images including power-point template are credited to Thompson, Peteraf, Gamble, Strickland’s (Crafting and Executing Strategy, 19th edition textbook). This is the book I use in my MBA strategy classes.
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Mergers and Acquisitions: Theory Review
India- Trends and Developments
India- Challenges
India- Sectors
India M&As – Examples, Case Studies
Break-out Exercise
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Theory Review
The theory slides and some of the images are credited to Thompson, Peteraf, Gamble, Strickland’s (Crafting and Executing Strategy, 19th edition textbook). This is the book I use for my MBA strategy classes.
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Mergers and Acquisitions
When to Merge or Acquire Why? Building Shareholder Value Choosing the M&A Path: Related versus Unrelated
Businesses Whom to acquire or merge with? Evaluating the M&A strategy
Industry Attractiveness testCost of Entry TestValue Chain Analysis
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Levels of Strategy-Makingin a Diversified Company
Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level Managers
Business-Level Managers
Functional Managers
OperatingManagers
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Diminishing growth prospects Expand into industries - technologies and products
complement its present business Leverage existing competencies and capabilities Reduce costs Powerful brand name transfer
When Should a Firm Merge or Acquire?
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Why Merge or Acquire?
To build shareholder value!
Three tests1. Industry Attractiveness Test
2. Cost of Entry Test
3. Better-Off Test — the company’s different businesses should perform better together than as stand-alone enterprises
1 + 1 = 31 + 1 = 3
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Related
businesses whose value chains possess
competitively valuable “strategic fits” with value chain(s) of firm’s present
business(es)
Unrelated
businesses with no competitively valuable
value chain match-ups or strategic fits with firm’s
present business(es)
Related vs. Unrelated M&As
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Fig. 1: Related Businesses Possess Related ValueChain Activities and Competitively Valuable Strategic Fits
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Fig. 9.3: Unrelated Businesses Have Unrelated Value Chains and No Strategic Fits
Fig. 2: Unrelated Businesses Have UnrelatedValue Chains and No Strategic Fits
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Whom to Acquire?
Companies with undervalued assets
Companies in financial distress
May be purchased at bargain prices and turned around
Companies with bright growth prospects but short on investment capital
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Cost of Entry Test
This test should be applied to companies that
diversify via acquisitions.
What is the payback period for the acquisition?
(Use NPV , Break-even analysis, etc, ---)
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Identify businesses which have valuechain match-ups offering opportunities to Reduce costs
Transfer skills / technology
Share use of a well-known
powerful brand name
Create valuable new competitive capabilities
Evaluate Portfolio for Competitively Valuable Cross-Business Strategic Fits
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Fig. 4: Identifying Competitive AdvantagePotential of Cross-Business Strategic Fits
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Trends and Developments in India
New Government open to foreign investment and economic development
Budget reforms and new regulatory changes
Friendly tax environment
BRICS high growth, slower growth in developed economies
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Challenges in India
Regulations nascent: early stages of development
Complex process
Legal issues: Competition Act 2002
New Companies Act 2013
Shareholder activism
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Promising sectors in India
E-commerce
Health care
Pharmaceuticals
IT
Telecommunications
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Break-out exercise
1. Why did this firm engage in the acquisition?
2. Are there opportunities for economies of scale and scope?
3. Perform a Value Chain test. Refer to figure 4 – power-point slide
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Conclusion
Business Strategy: Value Chain Analysis
Corporate Strategy including M&As: Comparison between Value chains of two or more business units
The introductory slides are credited to Thompson, Peteraf, Gamble, Strickland’s (Crafting and Executing Strategy, 19th edition textbook)