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Mergers and Acquisitions
An acquisition is where one company purchases another
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A merger is where two companies join to form a new company
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Mergers typically involve companies of similar size,
although one firm is usually the dominant partner
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Motives
Mergers and Acquisitions are not strategies in themselves, they are tools of strategy
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This would allow the
acquirer to identify undervalued companies, buy them, and then sell them once the
market had correct its valuation
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These objectives might include:
Acquiring strategically important resources and capabilities:
The most valuable resources and capabilities are those that are not transferable and
not easily replicated
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In technology-based industries, established companies regularly acquire small start-up
firms in order to acquire capabilities in emerging areas of technology
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Over the
same period, Microsoft made 71 acquisitions: these have provided Microsoft with the
technical capabilities needed for it to built its positon in video games, online
advertising, internet telephony, and cloud computing
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Seeking cost Economies and Market Power
The most obvious benefits of M&A result from companies in the same industry
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Expanding into new geographical markets:
Acquisition is the most popular method to entry into foreign markets
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In automobiles recent cross-border mergers have included Jaguar and Land
Rover, Fiat and Chrysler or Renault and Nissan
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Heineken acquired 34 beer companies
in 31 different countries during 2002-2011
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The alternative (diversification
by means of new business star-up) tends to be too slow for most companies
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For
example:
• IBM´s transition from a hardware to a software company involved the
acquisition of 115 companies between 2000 and 2011, including PwC
Consulting
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For example, Microsoft´s entry into
video games with the launch of Xbox in November 2001 was preceded by the
acquisition of several small companies
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For example, Bank of America´s 2009 acquisition of Merrill
Lynch catapulted the firm into the ranks of the world´s leading investment banks
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Yet these advantages of speed come at a cost
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For acquiring firms, studies show that the returns
are either negative or insignificant
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Moreover, evidence shows that some of the most carefully planned mergers and
acquisitions can end up as failures because of the problems of managing post-merger
integration
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STRATEGIC ALLIANCES
A strategic alliance is a collaborative arrangement between two or more firms to
pursue agreed common goals
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Other alliances are agreements without any ownership stakes:
the agreement between Nokia and Microsoft for Nokia to develop a range of new
smartphones based upon the Windows phone-operating system involves no exchange
of equity between companies
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Motives for Alliances
Alliances are motivated primarily by opportunities for exploiting the resources and
capabilities owned by different companies
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There has been a debate about whether the primary aim of strategic alliances is to
access the partner´s resources and capabilities or to acquire them through learning
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Conversely, General Motors joint venture with Toyota was motivated by GM´s desire
to learn about the Toyota Production System
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A key advantage of such alliances is the
flexibility of the offer
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In the petroleum industry for example, projects
normally come in the form of joint ventures
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It is tempting to view a strategic alliance as a quick and a low-cost means of extending
the capabilities available to a firm
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This capability requires building trust, developing interfirm knowledge sharing routines, and establishing mechanisms for coordination
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When entering an overseas market, the
internationalizing firm will typically lack the local knowledge, political connections, and
access to distribution channels that a local firm will possess
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By sharing resources and
capabilities, alliances economize on the investment needed for major international
initiatives
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Some firms have built their internationalization strategies almost entirely on crossborder alliances:
• Gazprom, the Russian gas giant, has alliances relating to pipeline projects with
ENI(Italy), CNPC(China), EON(Germany), and supply arrangements with Gaz de
France
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For the local partner, an alliance with a foreign firm can also be an attractive means of
accessing resources and capabilities
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However international alliances are difficult to manage: The usual problems that
alliances present (communication, agreement, and trust) are exacerbated by
differences in language, culture, and greater geographical distance
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However, some alliances between Western and Asian companies have been highly
successful (for example Renault / Nissan)
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When each
partner seeks to access the other´s capabilities, competition for competence results
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In the recent years, western
companies have been stressed by the speed at which their Chinese partners have
absorbed their technology and have emerged as international competitors

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