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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)