Trends in M&As
Trends in M&As
Trends in M&As
Agenda
Strategy assignment
Trends
Performance
Motives
Firm and environment characteristics
Integration
Strategy report
Write a strategy report based on your analysis of either one of these companies: Air New Zealand, Fletcher Building, Fonterra, Spark, or The Warehouse Group. The analysis feeding into this report should effectively apply appropriate analysis tools.
2000 words max length
The report should include:
Executive summary
Introduction
Short summary of the challenge (assignment 1)
Analysis and recommendation of a strategy to address the challenge
Conclusion
Appendix
Today’s learning objectives
Understand trends in M&A activity
Learn about reasons for M&A activity
Understand problems with M&A activity
Learn about restructuring activities
Number of Transactions
Number of TransactionsMergers & Acquisitions Worldwide
Cross-border Mergers & Acquisitions
0
500
1,000
1,500
2,000
2,500
0
4,000
8,000
12,000
16,000
20,000
1985
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1991
1992
1993
1994
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1997
1998
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2015
2016
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2018
2019
2020
Value of Transactions (in bil. USD)
Number of Transactions
0
500
1,000
1,500
2,000
2,500
0
4,000
8,000
12,000
16,000
20,000
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Value of Transactions (in bil. USD)
Number of Transactions
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Professional Services
Building/Construction & Engineering
Transportation & Infrastructure
IT Consulting & Services
Internet Software & Services
Other Consumer Products
Automobiles & Components
Food & Beverage Retailing
Number and Value of M&A by Target Industry (1985
–
2016)
Number
Value
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Professional Services
Building/Construction & Engineering
Transportation & Infrastructure
IT Consulting & Services
Internet Software & Services
Other Consumer Products
Automobiles & Components
Food & Beverage Retailing
Number and Value of M&A by Target Industry (1985
–
2016)
Number
ValueMetals & Minin
”A review of 167 empirical academic articles showed that on average firms do not benefit from acquisitions, but there are conditions and situations in which firms do benefit”
Haleblian, Devers, McNamara,
Carpenter and Davison JOM 2009
”Companies spend more than $ 2 trillion on acquisitions every year. Yet study after study put the failure rate of M&A somewhere between 70% and 90%.”
Christensen, Alton, Rising and Waldeck
HBR 2011
Mergers and acquisitions
Merger
Combination of two (equal) firms
Seldom exist in practice
Acquisition
One firm buys a controlling stake in another firm
Types
Horizontal
Related
Vertical
Unrelated
Cross-border (international)
The acquisition process
• Deal characteristics only explain a small fraction of variance in M&A outcomes (King et al., 2004)
Motivation
Negotiation
Deal
Integration
Outcome
Focus today
Due diligence
Motivation
Negotiation
Deal
Integration
Outcome
Focus today
Due diligence
Value creation in acquisitions
Discussion
DiscussionWhat is value creation in acquisitions?
How should you determine if a potential acquisition should be pursued (pre-acquisition)?
How do you know if your acquisition was successful (post-acquisition)?
Value creation in acquisitions
Market base measures of performance
Cumulative abnormal returns around announcement date
Most studies find no or a negative effect
Accounting base measures of performance
Ratios (e.g. ROA, ROS, etc.), cash flow, growth (e.g. sales, profit)
Considerations: Temporal horizon, level of analysis (acquirer, target, both)
Most studies find no or negative effects for ratios and growth measures but some positive effects for cash flow.
Acquisition motives and value creation
Value creating motives:
Market power (+)
Efficiency (+)
Resource (re)combination (+)
Synergy (+)
‘Turnaround’ (+)
Financial (e.g. tax) (+)
Value neutral motives
Speed
Market entry
Scope adjustment
¾ Strategic & organisational fit
M&As gone wrong
Main motive
Synergies in distribution, product design and R&D
The promise was never realised
In 2001 the market value of DaimlerChrysler dropped to 44 billion
In 2007 Chrysler was sold (remaining stake in 2009) with a direct financial loss of 37 billion.
Firm and environment characteristics
Experience
Performance
Size
Uncertainty
Regulation
Imitation/Waves
• Managers
Due diligence
Strategic fit
Capitalization & ownership
Financial matters
Material contracts
Physical assets & real estate
Intellectual property & other intangible assets
Customers, marketing & sales
Product liabilities and warranties
Matters related to production & R&D (incl. suppliers)
Employee-related matters
Management-related matters
IT-related matters
Litigation
Tax matters
Antitrust & regulatory issues
Environmental issues
Insurance
Compliance with filings
Integration
Multiple sub-processes
strategic integration of activities and resources
social and cultural aspects
Dynamic in nature, and characterized by complexity, ambiguity, and contradictions
Source: P. Haspeslagh and D. Jemison, Managing Acquisitions, Free Press, 1991.
Integration
Coordination and alignment vs domination and control
Reconfiguration and renewal
Culture (national and organizational)
Identity
Justice
Trust
Restructuring
Changes to the set of businesses or structure within businesses
Types
Downsizing (internal changes)
Downscoping (selling of businesses)
Leverage buyouts (selling of businesses to a ‘private’ party)
Performance
Generally positive impact for parent firm (both for accounting and market based returns)
BUT:
Variance between types
Strategic intent
Relatedness (no effect)
Resource value
Low vs high performance divestitures
Next week
Cooperative strategy
Required reading: Chapter 9
Required reading: The rules of co-opetition
Required reading: CASE 4: Pfizer
Don’t forget your preparation (poste one comment).
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