Professional Documents
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Saurabh Shekhar
07bs3884
The consolidation
or combination
Merger of one firm with
another
A B A
The purchase of
one firm by
another so that
Acquisition ownership
transfers
• Vertical
– A merger in which one firm acquires a supplier or another firm that is
closer to its existing customers.
– Often in an attempt to control supply or distribution channels.
• Conglomerate
– A merger in which two firms in unrelated businesses combine.
– Purpose is often to ‘diversify’ the company by combining uncorrelated
assets and income streams
– Deregulation
1/27/2009
Source: J.L. bower, “ Not All M&As Are Alike – andSaurabh Shekhar.07bs3884,IBS
That Matters,” Hyderabad
Harvard Business Review 79:3 (2001), 92-101 6
M&As IN DYNAMIC CONTEXTS
Technological Cisco and Microsoft both use acquisitions to ensure
change they maintain their strong competitive positions
AT&T divested local operations into “Baby Bells” and set off a
Deregulation
state of almost constant M&A
1/27/2009 Saurabh Shekhar.07bs3884,IBS Hyderabad 7
M&As AND INDUSTRY LIFE CYCLE
• Popular definition: 1 + 1 = 3
• Efficiency Increases
– New management team will be more efficient and add
more value than what the target now has.
– The combined firm can make use of unused
production/sales/marketing channel capacity
• Financing Synergy
– Reduced cash flow variability
– Increase in debt capacity
– Reduction in average issuing costs
– Fewer information problems
• Strategic Realignments
– Permits new strategies that were not feasible for prior to the
acquisition because of the acquisition of new management
skills, connections to markets or people, and new
products/services.
Some lessons
Does it fit with our current strategy? Is it a manifestation of it?
Is it capable of integration with our existing business?
Will it enhance our competitive advantage?
Do the economics stand up to the test? Most acquisitions are
killed by the premium required, which cannot be recaptured.