Professional Documents
Culture Documents
Takeover
- Where one business acquires a controlling interest in another business
- A change of ownership
Merger
- A combination of two previously separate businesses into a new business
Diversification
- Expanding into new markets with new products
- The riskiest growth strategy
KEY STRATEGIC DRIVERS OF M&A ACTIVITY
Strategic Motives
- Improve and develop the business
- Closely linked to competitive advantage
- E.g. economies of scale
Financial Motives
- Make best use of financial resources for shareholders
- Improve financial performance
- E.g. higher profits
Managerial Motives
- Self-interest of managers
- Not necessarily in the best interest of shareholders
- E.g. want to lead a bigger business
EXAMPLES OF SUCCESSFUL DEALS
Does the takeover or merger fit with the objectives of the business?
Will shareholders gain from synergy?
Cost Savings
- Eliminate duplicated functions and services
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
Importance of synergies
Extent to which firms are similar
- E.g. products, markets
Quality of integration planning and action
- E.g. communication, leadership
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
JOINT VENTURES
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
De- Mergers
When a firm decides to split into separate firms
KEY MOTIVATIONS
Pricing power
Entry barriers
Monopsony
Supply chain control
Economies of scale
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
KEY DEFINITIONS
External Growth
- Use of takeovers and mergers
Organic Growth
- Growth from within the business
- E.g. New products, expansion into new markets
Diversification
- Expanding into new markets with new products
- The riskiest growth strategy
KEY THEORIES TO CONSIDER
Ansoffs Matrix
- A model that analyses four growth options
- Product development
- Market penetration
- Market development
- Diversification
Porter Generic Strategies
- 3 strategies commonly used by businesses to achieve competitive
advantage
- Cost leadership
- Differentiation
- Focus
Economies of Scale
- Where unit costs fall as a result of increased scale or scope of operations
- Key to strategy of cost leadership
HOW M&T FITS INTO A STRATEGY
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
Technological change
Need for scale to remain competitive
Need to be able to supply customers globally
Low growth in mature economies
Access to wider distribution
Invest in emerging markets
Strategic Motives
- Focused on improving and developing the business
- Closely linked to competitive advantage
Financial Motives
- Focuses on making best use of financial resources for shareholders
- Concerned with improved financial performance
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
Managerial Motives
- Focused on the self-interest of managers
- Not necessarily in the best interest of shareholders
KEY STRATEGIC MOTIVES
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers
BUSS4
Too many involve mature businesses which dont really need the
investment
Over-geared: too much debt used to finance the transaction
Short-termism: not always a long term investor
Too much focus on cost cutting and asset stripping
IT DEPENDS ON...
EVALUATION OPPORTUNITIES
Questionable motives
High failure rate
Diseconomies of scale
http://beta.tutor2u.net/economics/blog/unit-3-micro-business-growth-takeovers-
and-mergers
http://beta.tutor2u.net/business/blog/revision-presentation-motives-for-
takeovers-and-mergers