SM Presentation12

8/8/2019 SM Presentation12

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Acquisition, Mergers & Strategic

AlliancesPresented By:

Shweta Gupta (A-15)

Disha Lunagariya (A-25)

Ankit Mehta(A-29)

Ankit Pansuria(A-35)

Milap Udani(A-57)


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Mergers, Acquisitions, and Takeovers:


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Types Of Acquisitions


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Reasons for Acquisitions

Learning andLearning and

developingdeveloping

new capabilitiesnew capabilities

Reshaping firmReshaping firmss

competitive scopecompetitive scope

IncreasedIncreased

DiversificationDiversification

P&GP&G -- GilleteGilleteLower risk thanLower risk than

developing newdeveloping new

productsproducts

Cost of new productCost of new product

developmentdevelopment

((pepsicopepsico & Tropicana)& Tropicana)

OvercomingOvercoming

entry barriersentry barriers

((WalmartWalmart,, BhartiBharti))

Increase speedIncrease speed

to marketto market

IncreasedIncreased

market powermarket power

((NestleNestle--Gerber)Gerber)

Making anMaking an

AcquisitionAcquisition


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Problems in Achieving Acquisition

Success

Too largeToo large

TataTata -- CorusCorus

ManagersManagers

overly focused onoverly focused on

acquisitionsacquisitions

Extraordinary debtExtraordinary debt

(TATA, jaguar)(TATA, jaguar)

InadequateInadequate

target evaluationtarget evaluation

Too muchToo much

diversificationdiversification

Inability toInability to

achieve synergyachieve synergy

IntegrationIntegration

difficultiesdifficulties

ProblemsProblems

withwith

AcquisitionsAcquisitions


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Effective Acquisition Strategies

ComplementaryComplementary

Assets /ResourcesAssets /Resources

Buying firms with assets that meetBuying firms with assets that meet

current needs to build competitiveness.current needs to build competitiveness.

FriendlyFriendly

AcquisitionsAcquisitionsFriendly deals make integration go moreFriendly deals make integration go more

smoothly.smoothly.

Careful SelectionCareful Selection

ProcessProcess

Deliberate evaluation and negotiationsDeliberate evaluation and negotiations

are more likely to lead to easyare more likely to lead to easy

integration and building synergies.integration and building synergies.

Maintain FinancialMaintain Financial

SlackSlack

Provide enough additional financialProvide enough additional financial

resources so that profitable projectsresources so that profitable projects

would not be foregone.would not be foregone.


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Attributes ofEffective Acquisitions

AttributesAttributes ResultsResults

LowLow--toto--ModerateModerate

DebtDebt

Merged firm maintainsMerged firm maintains

financial flexibilityfinancial flexibility

FlexibilityFlexibility Has experience atHas experience atmanaging change and ismanaging change and is

flexible and adaptableflexible and adaptable

SustainSustain

EmphasisEmphasis

onon InnovationInnovation

Continue to invest in R&DContinue to invest in R&D

as part of the firmas part of the firms overalls overall

strategystrategy


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Restructuring

A reduction in the number of a

firms employees and sometimes in

the number of its operating units.

May or may not change the

composition of businesses in thecompanys portfolio.

Typical reasons for downsizing:

Expectation of improved

profitability from cost reductions

Desire or necessity for more

efficient operations

Ex. Tata Corus/jaguar landover

DownsizingDownsizing


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Restructuring


DownscopingDownscoping

A divestiture, spin-off or other means of

eliminating businesses unrelated to a firms

core businesses.

A set of actions that causes a firm to

strategically refocus on its core businesses.

May be accompanied by downsizing, butnot eliminating key employees from its

primary businesses.

Smaller firm can be more effectively

managed by the top management team.

Ex. TATA Lakme HLL

Ex. UB Group


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Restructuring


DownscopingDownscoping

LeveragedLeveragedBuyoutsBuyouts

A restructuring strategy whereby a party

buys all of a firms assets in order to take

the firm private.

Significant amounts of debt may be

incurred to finance the buyout.

Immediate sale of non-core assets topare down debt.

Can correct for managerial mistakes

Managers making decisions that

serve their own interests rather than

those of shareholders.

Can facilitate entrepreneurial efforts and

strategic growth.


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Cooperative Strategy

Cooperative Strategy A strategy in which firms work together to achieve

a shared objective.

Cooperating with other firms is a strategythat:

Creates value for a customer.

Exceeds the cost of constructing customer value inother ways.

Establishes a favorable position relative to

competitors.


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Strategic Alliance

A primary type of cooperative strategy in

which firms combine some of their resources

and capabilities to create a mutual

competitive advantage.

Involves the exchange and sharing of resources

and capabilities to co-develop or distribute goods

and services. Requires cooperative behavior from all partners.

Ex. Adani - Reliance


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Strategic Alliance

CombinedCombined

ResourcesResources

CapabilitiesCapabilities

Core CompetenciesCore Competencies

ResourcesResources



ResourcesResources



Firm AFirm A Firm BFirm B

Mutual interests in designing, manufacturing,Mutual interests in designing, manufacturing,

or distributing goods or servicesor distributing goods or services


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Types of Strategic Alliances

Joint Venture

Two or morefirms create alegallyindependentcompany bysharing some oftheir resourcesand capabilities

Unitech - Telenor

Equity StrategicAlliance

Partners whoown differentpercentages ofequity in aseparatecompany theyhave formed.

Ex, vodafoneessar

NonequityStrategic Alliance

Two or morefirms develop acontractualrelationship toshare some oftheir uniqueresources andcapabilities.

UPS - Nike


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Reasons for Strategic Alliances

Market Reason

Slow Cycle Gain access to a restricted

market

Establish a franchise in a newmarket

Maintain market stability (e.g.,

establishing standards)


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Market Reason

Fast Cycle Speed up development of new

goods or service

Speed up new market entry Maintain market leadership

Form an industry technology

standard Share risky R&D expenses

Overcome uncertainty

AMA-IGNU


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Market Reason

Standard Cycle Gain market power (reduceindustry overcapacity)

Gain access to complementary

resources

Establish economies of scale

Overcome trade barriers

Meet competitive challenges from

other competitors Pool resources for very large

capital projects

Learn new business techniques


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Business-Level Cooperative

StrategiesComplementary

strategic

Alliance

Competitionresponse

strategy

Uncertaintyreducingstrategy

Competitionreducingstrategy


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Complementary AlliancesComplementary Alliances

Combine partner firms assets in

complementary ways to create new value.

Include distribution, supplier or outsourcingalliances where firms rely on upstream ordownstream partners to build competitive

advantage.


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Competition Response AlliancesCompetition Response Alliances

Occur when firms join forces to respond to astrategic action of another competitor.

Because they can be difficult to reverse andexpensive to operate, strategic alliances areprimarily formed to respond to strategic

rather than tactical actions.


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Uncertainty Reducing AlliancesUncertainty Reducing Alliances

Are used to hedge against risk and uncertainty.

These alliances are most noticed in fast-cyclemarkets

An alliance may be formed to reduce theuncertainty associated with developing newproduct or technology standards.


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Competition Reducing AlliancesCompetition Reducing Alliances

Created to avoid destructive or excessivecompetition

Explicit collusion: when firms directly

negotiate production output and pricingagreements in order to reduce competition(illegal).

OPEC

Tacit collusion: when firms in an industryindirectly coordinate their production andpricing decisions by observing other firmsactions and responses.


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Corporate-Level Cooperative Strategy

Corporate-level Strategies

Help the firm diversify in terms of

Products offered to the market

The markets it serves

Require fewer resource commitments.

Permit greater flexibility in terms of efforts to

diversify partners

operations.


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Diversifying Strategic Alliances

Allows a firm to expand into new

product or market areas without

completing a merger or an acquisition.

Provides some of the potential

synergistic benefits of a merger or

acquisition, but with less risk and

greater levels of flexibility.

Permits a test of whether a future

merger between the partners would

benefit both parties.

DiversifyingDiversifying

Strategic AllianceStrategic Alliance


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Franchising Spreads risks and uses resources,

capabilities, and competencies

without merging or acquiring another

company.

A contractual relationship (the

franchise) is developed between twoparties, the franchisee and the

franchisor.

An alternative to pursuing growth

through mergers and acquisitions.

DiversifyingDiversifying


SynergisticSynergistic


FranchisingFranchising


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International Cooperative

Strategies Cross-border Strategic Alliance

A strategy in which firms with headquarters in

different nations combine their resources andcapabilities to create a competitive advantage.

A firm may form cross-border strategic alliances to

leverage core competencies that are the

foundation of its domestic success to expand intointernational markets.


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International Cooperative

Strategies (cont

d) Synergistic Strategic Alliance

Allows risk sharing by reducing financial

investment. Host partner knows local market and customs.

International alliances can be difficult to manage

due to differences in management styles, culturesor regulatory constraints.

Must gauge partners strategic intent such that

the partner does not gain access to important

technology and become a competitor.


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Network Cooperative Strategy

A cooperative strategy wherein several firms

agree to form multiple partnerships to achieve

shared objectives.

Stable alliance network

Dynamic alliance network

E

ffective social relationships and interactionsamong partners are keys to a successful

network cooperative strategy.


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Network Cooperative Strategies

(cont

d) Long term relationships thatLong term relationships thatoften appear in matureoften appear in mature

industries where demand isindustries where demand is

relatively constant andrelatively constant and

predictablepredictable

Stable networks are built forStable networks are built for

exploitationexploitation of the economiesof the economies

(scale and/or scope)(scale and/or scope)

available between the firmsavailable between the firms

Stable AllianceStable Alliance

NetworkNetwork


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Network Cooperative Strategies

(cont

d) Arrangements that evolve inArrangements that evolve inindustries with rapidindustries with rapid

technological change leadingtechnological change leading

to short product life cycles.to short product life cycles.

Primarily used to stimulatePrimarily used to stimulate

rapid, valuerapid, value--creating productcreating product

innovation and subsequentinnovation and subsequent

successful market entries.successful market entries.

Purpose is oftenPurpose is often explorationexplorationof new ideasof new ideas

Stable AllianceStable Alliance

NetworkNetwork

Dynamic AllianceDynamic Alliance

NetworkNetwork

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