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firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Takeover
A special type of acquisition when the target firm did
Making an Acquisition
Increased diversification
competitive levels. Costs of primary or support activities are below those of competitors. A firms size, resources and capabilities gives it a superior ability to compete.
Acquisitions intended to increase market power
acquiring firm
Related acquisitions: firms in related industries
Horizontal Acquisitions
Acquisition of a company in the same industry in
which the acquiring firm competes increases a firms market power by exploiting:
Cost-based synergies Revenue-based synergies Acquisitions with similar characteristics result in
Vertical Acquisition
Acquisition of a supplier or distributor of one or more of
operating in it that increase the expense and difficulty faced by new ventures trying to enter that market
Economies of scale Differentiated products
Cross-Border Acquisitions
Acquisitions made between companies with
easily and accurately than the outcomes of an internal product development process.
Managers may view acquisitions as lowering risk
acquiring firm, the greater is the probability that the acquisition will be successful.
or markets.
Reducing a companys dependence on specific
related and complementary capabilities in order to build their own knowledge base.
Extraordinary debt
and acquired firms assets yields capabilities and core competencies that could not be developed by combining and integrating either firms assets with another company. Advantage: It is difficult for competitors to understand and imitate.
Disadvantage: It is also difficult to create.
greater diversity.
Increased operational scope created by diversification
may cause managers to rely too much on financial rather than strategic controls to evaluate business units performances.
Strategic focus shifts to short-term performance. Acquisitions may become substitutes for innovation.
is completed.
with long-term consequences until negotiations have been completed. The acquisition process can create a short-term perspective and a greater aversion to risk among executives in the target firm.
of the economies of scale and additional market power. Larger size may lead to more bureaucratic controls. Formalized controls often lead to relatively rigid and standardized managerial behavior. The firm may produce less innovation.
Attributes 1. Acquired firm has assets or resources that are complementary to the acquiring firms core business 2. Acquisition is friendly 3. Acquiring firm conducts effective due diligence to select target firms and evaluate the target firms health (financial, cultural, and human resources) 4. Acquiring firm has financial slack (cash or a favorable debt position) 5. Merged firm maintains low to moderate debt position 6. Acquiring firm has sustained and consistent emphasis on R&D and innovation 7. Acquiring firm manages change well and is flexible and adaptable Results 1. High probability of synergy and competitive advantage by maintaining strengths 2. Faster and more effective integration and possibly lower premiums 3. Firms with strongest complementarities are acquired and overpayment is avoided 4. Financing (debt or equity) is easier and less costly to obtain 5. Lower financing cost, lower risk (e.g., of bankruptcy), and avoidance of trade-offs that are associated with high debt 6. Maintain long-term competitive advantage in markets 7. Faster and more effective integration facilitates achievement of synergy
Flexibility
Restructuring
A strategy through which a firm changes its set of
restructuring strategy.
Restructuring may occur because of changes in the
Downscoping
Leveraged buyouts
reductions
Desire or necessity for more efficient operations
debt.
Can correct for managerial mistakes
Managers making decisions that serve their own
growth.