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Acquisitions and
Restructuring Strategies
1
Chapter Learning Objectives
To be able to: Name and describe
attributes of effective
Explain the popularity of
acquisitions.
acquisition strategies in firms
competing in the global Define the restructuring
economy. strategy and distinguish
Discuss reasons firms use among its common forms.
an acquisition strategy to Explain the short- and long-
achieve strategic term outcomes of the
competitiveness. different types of
Describe seven problems restructuring strategies.
that work against developing
a competitive advantage
using an acquisition strategy.
2
The Strategic
Management
Process
Figure 1.1
4
Acquisitions:
Increased Market Power
Factors increasing market power
When there is the ability to sell goods or services above
competitive levels
When costs of primary or support activities are below
those of competitors
When a firms size, resources and capabilities gives it a
superior ability to compete
Acquisitions intended to increase market
power are subject to:
Regulatory review
Analysis by financial markets
5
Acquisitions:
Increased Market Power (contd)
6
Market Power Acquisitions
Horizontal
Acquisition Acquisition of a company in the
s 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 higher
performance than those with
dissimilar characteristics
7
Market Power Acquisitions (contd)
Horizontal
Acquisition Acquisition of a supplier or
s distributor of one or more of
Vertical
Acquisition the firms goods or services
s
Increases a firms market
power by controlling
additional parts of the
value chain
8
Market Power Acquisitions (contd)
Horizontal
Acquisition Acquisition of a company in
s a highly related industry
Vertical
Acquisition Because of the difficulty in
s implementing synergy,
Related related acquisitions are often
Acquisition difficult to implement
s
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Acquisitions:
Overcoming Entry Barriers
Factors associated with the market or with
the firms currently 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
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Acquisitions: Cost of New-Product
Development and
Increased Speed to Market
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Acquisitions: Lower Risk Compared to
Developing New Products
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Acquisitions: Increased Diversification
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Acquisitions: Reshaping the Firms
Competitive Scope
An acquisition can:
Reduce the negative effect of an intense
rivalry on a firms financial performance
Reduce a firms dependence on one or more
products or markets
Reducing a companys dependence on
specific markets alters the firms
competitive scope
14
Acquisitions: Learning and Developing
New Capabilities
An acquiring firm can gain capabilities that
the firm does not currently possess:
Special technological capability
Broaden a firms knowledge base
Reduce inertia
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Problems in Achieving Acquisition
Success: Integration Difficulties
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Problems in Achieving Acquisition Success:
Inadequate Evaluation of the Target
Due Diligence
The process of evaluating a target firm for acquisition
Ineffective due diligence may result in paying an excessive
premium for the target company
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Problems in Achieving Acquisition
Success: Large or Extraordinary Debt
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Problems in Achieving Acquisition
Success: Inability to Achieve Synergy
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Problems in Achieving Acquisition
Success: Too Much Diversification
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Problems in Achieving Acquisition Success:
Managers Overly Focused on Acquisitions
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Problems in Achieving Acquisition
Success: Too Large
Additional costs of controls may exceed the
benefits 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
Firm may produce less innovation
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Attributes of
Successful
Acquisitions
Table 7.1
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Restructuring
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Types of Restructuring: Downsizing
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Types of Restructuring: Downscoping
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Restructuring: Leveraged Buyouts