Mergers and Acquisitions Free Essays

Mergers and Acquisitions Free Essays Recent studies reveal that there are various strategies that are lumped and classified as mergers and acquisitions when they are not. In fact not all mergers and acquisitions are alike. This is why a better and deeper understanding of its differences in different situation is necessary. We will write a custom essay sample on Mergers and Acquisitions or any similar topic only for you Order Now Joseph Bower in his article tells us that there are actually five varieties of mergers and acquisitions. There are five reasons for mergers and acquisitions. With each reason, a distinct type of merger and acquisition arises. First Scenario: Overcapacity Mergers and Acquisitions.   Acquisition of the first type occurs in capital-intensive industries, which are more mature and with substantial overcapacity. Industries that undergo such type are generally involved in the automotive, steel and petrochemical markets. This type is usually a merger of equals; otherwise it is a merger of unequals, i.e. a large company acquires a small company. From the point-of-view of the acquirer, acquisition should take place for survival sake. What the acquirer does is to close down less competitive facilities in order to eliminate less effective managers and rationalize administrative processes. After the acquisition, the acquiring company has greater market share, a more efficient operation, better managers, more clout, with less excess capacity. The problems that arise with this type of merger and acquisition are with respect to the various people, facilities, processes and differing values that come together in the acquiring company. With respect to the people, in merger of equals, as these concern two different groups that come together, both battle to maintain their positions. This starts from top-management and goes down the ranks. In a merger of unequals people from the acquired company leave. And in the rare instance that they do come together, company cultures collide — company values clash. There are also problems that arise as to the choice of which facilities to keep and the processes to retain or discard. In short, without the proper guidelines and solutions, what this type of acquisition and merger brings forth is utter chaos. This is why it is important to note the possible conflicts and what is valuable among what is acquired. If the values and the cultures of the two companies are very different, the acquiring company should take time to think about the acquisition. This may not be a good idea. If the process and values that are acquired are what are valuable, time is material in reaping the benefits. Hence, the unnecessary battle in the top and in the ranks is completely unnecessary and negligible. However, if it will take timthat if what is acquired are valuable processes and values Second Scenario: The Geographic Roll-Up Mergers and Acquisitions. The second reason is in order to roll-up competitors in geographically fragmented industries. In this classification, a successful company expands geographically by acquiring units that operate locally. This is different from the first type in that the first type the industries are older. In the second type, such merger and acquisition takes place when the industry is fairly young. The goal of the first type is to reduce capacity and duplication, while the goal of the second type is to achieve economies of scale and scope while building industry giants. The first type is a win-lose scenario, rarely is it successful. The second type is generally a win-win scenario as it is easier to pull-off. Both the problems of the acquired and acquiring company are solved. With respect to the acquired company, the problems of succession, access to capital, national marketing, modern technology and competitive threats from large rivals are alleviated. With respect to the acquiring company, problems of geographic entry and local management are solved. Problems as to resources are not also an issue with the second type compared to the first type. The choice of whether or not the operating unit remains local depends on whether the relation with the local customers is necessary or not. If it is, the operating company remains local. However a possible complication as to the second type is with respect to the acquiring company’s introduction of new processes and values. This may encounter strong resistance. In this case, the acquiring company must ease entry into the acquired company. Third Scenario: The Product or Market Extension Mergers and Acquisitions. The third reason is in order to extend new products into different markets. Through this acquisition, the company’s product line and its international coverage expands. In such type of merger and acquisition, success depends on the sizes of the company. If the companies are of the same size, then the problems of overcapacity or the problems of the first type may arise. However, if the acquiring company is bigger than the acquired company, then success is more likely. It must be noted that while the third type is similar to the second type, introduction of new processes and company values are more difficult in the former. There are also important matters that need consideration in this type.   One concern is the distance of the acquired company. The farther it is, the harder it is to integrate. Differences in processes and cultures must be taken into consideration. Fourth Scenario: Mergers and Acquisitions as RD. The fourth reason is to provide substitutes for RD. Acquisitions are used in lieu of in-house RD in order to build market positions quickly. This fourth type is related to the third type, however this is fairly new compared to the other. The fourth type is what is widely used for high-tech and biotech companies. From the point of view of the acquired company, acquisition is highly advantageous as it brings in massive amounts of money for establishing a sustainable company. This is also advantageous because otherwise competition with the bigger companies can crush the smaller ones. The problem with respect to this type is holding on to key individuals as in the field where this type is widely employed, expertise is more valuable that technology. The things to keep in mind before and when embarking on this type of merger and acquisition are to know what the acquiring company is targeting and to place powerful executives in the integration. Fifth Scenario: The Industry Convergence Mergers and Acquisitions. In this type, a company attempts to gain leverage by assembling disparate companies into a new industry.   Such attempt is based on unproven hypothesis that this new industry may click in the market. This is what makes the fifth type different from the first four types. The first four types change relationships among the industry players while the fifth type creates a new industry. Success depends not on how well the acquiring company buys and integrates but by how smart it is with respect to industry boundaries. It has been observed that entertainment companies are the ones that become successful in the fifth type. The most important thing to remember in this type of acquisition and merger is for the acquiring company to take careful steps during the process. Final Point. In conclusion, Bower tells us that in mergers and acquisitions, thinking, preparation and post-merger management is ultimately the key to success. How to cite Mergers and Acquisitions, Essay examples