Periodic environmental appraisal and organizational appraisal lead to generation of strategic alternatives. The strategic alternatives are then evaluated in the context of organizational strengths, weaknesses, opportunities and threats. Expansion strategy is followed when an organization wishes to broaden the scope of its customer groups, functions, alternative technologies etc.
Merger and Acquisition (or takeover) strategies basically involve the external approach to expansion. In this process basically two or occasionally more than two entities are involved. Mergers take place when the objectives of the buyer company and the seller company are matched to a large extent, while takeovers or acquisitions are usually based on the strong motivation of the buyer company. Takeovers are frequently classified as hostile takeovers (which are against the wishes of the acquired company) and friendly takeovers (by mutual consent in which case they could also be described as a merger). The purported key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. In a nutshell the key factors leading to M& A are;
A merger is a combination of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and assets and liabilities are combined and new stock is issued. For the organization which is acquired it is merger. For the organization which acquires another, it is acquisition. If both organizations dissolve their identity to create a new organization, it is called consolidation or amalgamation. Mergers are also classified as;
Horizontal Mergers: ...
For the organization which acquires another, it is acquisition. If both organizations dissolve their identity to create a new organization, it is called consolidation or amalgamation. Mergers are also classified as;
Horizontal Mergers: When there is a combination of two or more organizations in the same business, or of companies engaged in similar aspects of production or marketing processes. For example a steel making company combining with another steel making company.
Vertical Mergers: When there is a combination of two or more organizations, not necessarily in the same business, which creates complimentary situation either in terms of supply of materials (inputs) or marketing of goods and services (outputs). For example a footwear manufacturing company combining with a leather tannery or with a chain of shoe retail stores.
Concentric Mergers: When there is a combination of two or more organizations related to each other either in terms of customer functions, customer groups or alternative technologies used. For example a computer motherboard making company combining with a peripheral devices making company.
Conglomerate Mergers: When there is a combination of two or more organizations unrelated to each other, either in terms of customer functions, customer groups, or alternative technologies used. For example an IT company joining hands with a footwear manufacturing company.
For mergers to take place two organizations have to act. Both these organization have certain set of reasons for taking this step and accordingly they go into preparations and negotiations. Four key aspects to getting acquisitions right;
Pre-deal phase: It includes negotiations and rigorous due diligence like business due diligence, people due diligence, accounting due diligence