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Acquisition &

Restructurization
Sum by: Reny Marliadi
Merger and acquisition strategies have been
popular among U.S. firms for many years.

Merger, Acquisition, & Takeover


A merger is a strategy through which two firms agree to
integrate their operations on a relatively coequal basis.

An acquisition is a strategy through which one firm buys a


controlling, or 100 percent, interest in another firm with the
intent of making the acquired firm a subsidiary business within its
portfolio.
A takeover is a special type of
acquisition wherein the target firm
does not solicit the acquiring
firm’s bid; thus, takeovers are
unfriendly acquisitions.
Reasons for Acquisition

1. Increased Market Power


Market power exists when a firm is
able to sell its goods or services
above competi-tive levels or when
the costs of its primary or support
activities are lower than those of its
competitors.
Reasons for Acquisition

2. Overcoming Entry Barriers


Factors associated with the market or
with the firms operating in it that
increase the expense and difficulty
faced by new ventures trying to enter
that market
Reasons for Acquisition

3. Cost of New Product Development


and Increased Speed to Market
Acquisitions are another means a firm can
use to gain access to new products and to
current products that are new to the firm.
Reasons for Acquisition

4. Lower Risk Compared to


Developing New Products
Because the outcomes of an
acquisition can be estimated more
easily and accurately than
the outcomes of an internal product
development process, managers
may view acquisi-tions as being less
risky.
Reasons for Acquisition

5. Increased Diversivication
Using acquisitions to diversify a
firm is the quickest and easiest
way to change its portfolio of
businesses.
Reasons for Acquisition
6. Reshaping the Firm’s
Competitive Scope
To reduce the negative effect of
an intense rivalry on their
financial performance, firms may
use acquisitions to lessen their
dependence on one or more
products or markets. Reducing a
company’s dependence on
specific markets shapes the
firm’s competitive scope.
Reasons for Acquisition
7. Learning and Developing
New Capabilites
An acquiring firm can gain
capabilities that the firm does
not currently possess:
- Special technological
capability
- A broader knowledge
- Reduced inertia
Problems in Acquisition
Integration
Difficulties

Too Large Inadequate


Target Evaluation

Managers
PROBLEMS WITH
Overly Focused on Large or
ACQUISITIONS
Acquisitions Extraordinary Debt

Too Much Inability to


Diversification Achieve Synergy
Characteristics of Effective Acquisition
1) The acquiring and target firms have complementary resources that are the foundation
for developing new capabilities;
2) The acquisition is friendly, thereby facilitat-ing integration of the firms’ resources;
3) The target firm is selected and purchased based on thorough due diligence;
4) The acquiring and target firms have considerable slack in the form of cash or debt
capacity;
5) The newly formed firm maintains a low or moderate level of debt by selling off portions
of the acquired firm or some of the acquiring firm’s poorly performing units;
6) The acquiring and acquired firms have experience in terms of adapting to change; and
7) R&D and innovation are emphasized in the new firm.
Source
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Concepts Strategic Management
Competitiveness & Globalization 9th Edition. Mason: South Western Cengage
Learning.