Corporate Mergers And Acquisitions Pdf
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- Mergers and Acquisitions
- MBA IV MERGERS, ACQUISITIONS & CORPORATE RESTRUCTURING [14MBAFM407] NOTES
- MERGERS, ACQUISITIONS, AND CORPORATE RESTRUCTURING
- Mergers and acquisitions
The use of acquisitions to redirect and reshape corporate strategy has never been greater.
Mergers and Acquisitions
The use of acquisitions to redirect and reshape corporate strategy has never been greater. Many managers today regard buying a company for access to markets, products, technology, resources, or management talent as less risky and speedier than gaining the same objectives through internal efforts. And clearly, we must look beyond conventional advice on making acquisitions to understand how to manage them better.
Most analysts stress one of two ways to make acquisitions work. The second approach stresses the need to achieve an organizational fit between the two companies by matching administrative systems, corporate cultures, or demographic characteristics. Why, then, have even friendly acquisitions that apparently satisfy this advice failed to work out so often?
We believe that managers can gain insight into this question by looking beyond strategic or organizational fit to the acquisition process itself. Indeed, our research identifies three factors inherent in the process that can affect the result. The involvement of specialists and analysts with particular expertise and independent goals often results in multiple, fragmented views of the agreement.
General managers may find it difficult to integrate these perspectives. Increasing momentum to close the deal can force premature closure and limit consideration of integration issues. Both buyer and seller are often unable to resolve important areas of ambiguity before they complete the agreement. These factors may crop up in the planning for an acquisition, which may be over a protracted period, or during negotiations, which are likely to be rushed.
Although we had no data to back our claim, we suspected that the most important reasons for success would be quite different from those that led to failure. To answer this question, we conducted more than 25 interviews with senior managers involved with acquisitions and with investment bankers and consultants who provide advisory services to such managers.
We structured the interviews around the following open-ended questions:. What factors have contributed to the success of the acquisitions or mergers with which you have been involved? What departments or people in the two companies have been important to success or failure?
At what point did the managers involved recognize that an acquisition was a success or a failure? At each meeting, we asked for detailed descriptions of situations in which acquisitions had been particularly successful or unsuccessful. Respondents emphasized that the methods of successful, acquisition-oriented companies exemplified the classic prescriptions for acquisitions by diligently insuring a good strategic and organizational fit between the two businesses.
In contrast, acquisitions that failed achieved neither strategic nor organizational fit. While these answers supported prevailing theories, an important pattern began to emerge as we studied our interview data in greater depth.
Although we had not directed our research to the process of making an acquisition, the results indicated that aspects of the process could influence the eventual outcome of the deal. Although managers interviewed dwelled on the unique circumstances of each situation, we found that the same process-related problems reappeared again and again in our talks.
It became clear that, while the particular problems of strategic or oraganizational fit differed, the same problems in the acquisition process kept emerging.
We identified several of these as fundamental to the acquisition process. Of course, the principal parties to an acquisition cannot always control the negotiating process or its timing. Intermediaries and third parties have their own agendas, while a quick—even a hasty—decision to go ahead with an acquisition may be unavoidable. Recognizing these limitations, in this article we offer managers an approach to understanding barriers in the acquisition process as well as practical advice to deal with them.
Managers and analysts with specialized skills often dominate the process of making an acquisition. Although most top executives recognize that an acquisition strategy requires such a perspective, the problem of integrating a variety of overspecialized and fragmented views on the deal is quite common.
Another CEO described how within 30 hours he assembled a team of more than specialists, including investment bankers, management consultants, attorneys, accountants, as well as staff people from his company to analyze a prospective acquisition.
Only a few of these people had worked together before, and the entire process lasted only six days. This example, while extreme, highlights the problems generated when large teams of specialists with a narrow focus are thrown together to analyze a deal under intense time pressures. Under such conditions, people who have not worked closely together before or who do not share a common expertise and jargon can communicate only the most standardized information quickly and effectively.
Within a given specialty, people tend to gather similar data and produce comparable analyses. As larger groups of people with different specialties get involved, decision makers have more difficulty comparing and integrating analyses. Although specialization is an inherent part of decision making in many organizational settings, the resulting isolation of specialists in acquisitions leads to a lack of integration in their analyses.
As a result, top managers often focus their attention on more easily and quickly communicated issues of strategic fit rather than the more subtle and qualitative concerns of organizational fit. This dynamic occurs for several reasons. First, strategic fit issues directly reflect the espoused purpose of the acquisition.
Second, these issues often lend themselves to standardized analytical approaches that investment banks and consulting firms use to assess markets, products, industries, or technologies. In contrast, issues of organizational fit are less clear cut. Third, few channels of communication to exchange information exist among the various groups of analysts who perform their work in different time periods.
Although operating considerations are important in assessing the value of a target company, line managers do not normally participate in preacquisition analyses.
The skills necessary to negotiate an acquisition differ from those required to run things afterwards. Consequently, specialists in negotiation and number crunching may think that operating matters are outside their competence and may confine themselves to more familiar and easily analyzed financial issues. Specialists also tend to view issues of organizational fit as postponable and less prestigious: one does not work with CEOs to assess organizational fit; one deals with operating managers.
Since resolution of these issues is not essential to completing the acquisition, they are postponed for others to handle. Questions of organizational fit are also more ambiguous, more subjective, and therefore more open to challenge. Although they acknowledge the importance of qualitative organizational issues in acquisition outcomes, the investment bankers we interviewed told us that they rely chiefly on calculations based on purely quantitative criteria that can be more easily defended if challenged legally.
Top executives can overcome the problem of fragmented perspectives by taking an active role in the acquisition process. They need to search for ways to structure a balance among different groups and interests to ensure an integrated set of analyses. Achieving such harmony increases the likelihood that the company will realize its broader strategic goals in the acquisition. But on reflection, I was able to see that they only had one piece of the puzzle.
Biases are not restricted to outside advisers; everyone on the management team including the CEO has them. Then as problems began to arise, I realized that my overemphasis on one issue set the direction for everyone else, and a great many equally important factors were swept under the rug. Another way to address the problem of integrating perspectives is to include operating managers on the negotiating team.
This step can provide more focus on issues of organizational fit, balance financial and operational considerations, and ensure managerial continuity if the agreement goes through. For example, Sam Ginn, vice chairman of the Pacific Telesis Group, involves in negotiations the operating manager who would be responsible for the new subsidiary.
At PacTel, the arguments justifying the acquisition form the basis of the plan on which the target company will be run and against which the manager will subsequently be evaluated. This practice is intended to bring more operating realism to the analysis of the potential subsidiary. It also focuses valuation of the acquisition candidate as an ongoing business of the parent rather than on its historical performance as an independent entity.
If time or other factors prevent placing operating managers on the negotiating team, a company may use other methods to ensure consideration of organizational fit. Our research uncovered two interesting approaches in which companies encouraged different sets of advisers to work together. The consulting teams were not told that an acquisition was under consideration until after they had analyzed the two organizations independently and presented initial reports.
The prospective buyer then brought the consulting teams together to explore the feasibility of integrating the two companies via acquisition. Another corporation established two in-house analytical teams, one supporting the acquisition and the other opposing it. The groups helped ensure that the company gave enough time and attention to critical discussion of the acquisition. Many companies overlook the valuable role that an integrator can play in the acquisition process.
Formalizing such a role can be an important step to counteract the effects of fragmented perspectives. One approach is to identify a gadfly who can watch out for process-related problems. If such a person lacks decision-making authority, however, his or her effectiveness may be limited, and other managers may dismiss him or her as the house nay sayer. Another, more promising approach is to make sure key decision makers can remain as detached evaluators of the process while becoming involved at key junctures to assure integration of information and balance of perspectives.
A third solution is to have two influential company officials adopt complementary roles, one heading the acquisition effort and the other focusing on process or integration problems. We make these suggestions to emphasize the importance of ensuring high-level advocacy for integrating the two businesses.
While the range and volume of acquisitions in the United States make it difficult to generalize about managing the acquisition process, the experiences of the Loral Corporation, a highly profitable leader in the defense electronics industry, suggest some useful lessons.
Within several years, Loral divested nearly all of the businesses outside its core focus on electronics. Such policies can have clear payoffs. When Xerox Corporation announced that it would divest its Electro-Optical Systems division, Loral won over other bidders.
We sent an executive there for one day because we already knew the industry. Xerox never thought we were serious until we made the successful offer.
Loral relies on executive experience and discipline to ensure that objectives are met, to slow down the process, and to counterbalance the pressures for quick analysis and rushed decisions. Schwartz is also prepared to call off or restructure deals at a late date.
Although Loral had invested much effort in arranging the deal, minimum standards were set for the acquisition to proceed. Using these standards, planners fashioned a new proposal and presented it to Narda with a frank explanation for the reasons behind the action.
In the end, the transaction was made and both companies avoided hard feelings and unreachable goals. Then it comes down to people. So I think the investment you make before you make your deal—in terms of people relationships—is very significant. Be clear and firm about key objectives and procedures, but remain flexible about nonessentials. Communicate these distinctions explicitly to the target company.
Involve few people in analyzing and carrying out the acquisition, but try to involve those who will work with the business later. Researchers and financial analysts usually describe acquisitions as calculated strategic acts. In sharp contrast, people directly involved in the acquisition process often point to powerful forces beyond managerial control that accelerate the speed of the transaction.
Pressure to close a deal quickly can prevent managers from considering strategic and organizational fit issues completely and dispassionately and can lead to premature conclusions. The thrill of the chase blinded pursuers to the consequences of the catch.
Various forces increase momentum in the acquisition process. First, decision makers need secrecy and intense concentration.
MBA IV MERGERS, ACQUISITIONS & CORPORATE RESTRUCTURING [14MBAFM407] NOTES
Items in Shodhganga are protected by copyright, with all rights reserved, unless otherwise indicated. Shodhganga Mirror Site. Show full item record. A Study of Mergers and Acquisitions in India. Butt, Khursheed Ahmad. The present study was carried out with the aim of assessing the impact of mergers and acquisitions on the value of listed firms in India.
From a legal point of view, a merger is a legal consolidation of two entities into one, whereas an acquisition occurs when one entity takes ownership of another entity's stock , equity interests or assets. From a commercial and economic point of view, both types of transactions generally result in the consolidation of assets and liabilities under one entity, and the distinction between a "merger" and an "acquisition" is less clear. A transaction legally structured as an acquisition may have the effect of placing one party's business under the indirect ownership of the other party's shareholders , while a transaction legally structured as a merger may give each party's shareholders partial ownership and control of the combined enterprise. A deal may be euphemistically called a merger of equals if both CEOs agree that joining together is in the best interest of both of their companies, while when the deal is unfriendly that is, when the management of the target company opposes the deal it may be regarded as an "acquisition". Specific acquisition targets can be identified through myriad avenues including market research, trade expos, sent up from internal business units, or supply chain analysis.
It seems that you're in Germany. We have a dedicated site for Germany. Mergers and acquisitions continue to be amongst the preferred competitive options available to the companies seeking to grow fast in the rapidly changing global business scenario. In addition, the book investigates the corporate governance practices of the acquiring firms and their impact on the short- term as well as long- term performance of those firms. She has 20 years of teaching and research experience in subjects related to management accounting, financial management, costing and engineering economics and industrial economics. Surendra S.
MERGERS, ACQUISITIONS, AND CORPORATE RESTRUCTURING
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Mergers and acquisitions
A rigorous and relevant book on mergers, acquisitions and corporate restructuring for students and practitioners of finance. It covers the entire spectrum of activities in a typical merger transaction - starting from searching for candidates to closing the deal; Topics discussed include rationale for diversification via acquisition, searching for acquisitions, valuation of publicly and privately held companies, design of consideration in acquisitions, crossborder acquisitions and empirical data on mergers; The book covers various forms of corporate restructuring like spin offs, carve outs, targeted stocks, reorganization of debt contracts, lay offs and downsizing; It contains numerous real life examples and summarizes much of the research done in the last 20 years. Have you created a personal profile? Login or create a profile so that you can save clips, playlists and searches. Books Add to list Added to list. Edited by: Chandrashekar Krishnamurti. More information Less information icon angle.
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