Chapter 3: Strategising for M&A’s
Learning Outcomes
Explain the purpose of a strategy
Differentiate between generic and grand strategies
Discuss the difference between Porter’s main generic strategies
Differentiate between the four groups of grand strategies
Explain the role of M&A’s in corporate strategy
Define the concepts of economies of scale and economies of scope
Distinguish between operating and financial synergies
Explain the rationale behind the horizontal and vertical mergers
Discuss the benefits associated with taking control of an undervalued company
Differentiate between downsizing and down-scoping
Introduction
- Recall from chapter 1, most M&A transactions fail due to:
Ill conceived M&A strategies – it’s important that these transactions are in line with the company’s
vision and existing strategies.
- This is important in stage one where the strategies are formed
Poorly implemented M&A strategies – if there isn’t a fit between the companies and their strategies it
makes having a sustainable competitive advantage impossible.
- This is important in stages two to four .
- Distell acquired Bisquit cognac brand to gain access to markets in China – in line with their strategy of
wanting to be a SA brand that provided liquor for people all over the world.
- Strategies should be formed to create a fit between:
1.) the firms capabilities (Distell is a marketer of fine wines, ciders & ready-to-drinks)
2.) the consumers’ expectations (affordable, lower alcohol content beverages)
3.) the competitive environment (increasing global competition)
- Leaders need to formulate strategies that will allow them to maintain leadership positions.
Distell Transaction 1
Distell crafts liquor brands for people to enjoy responsibly at every occasion the world over. Africa’s leading
producer and marketer of spirits, fine wines, ciders and ready-to-drinks, Distell employs approx. 5000 people
and has an annual turnover in excess of R12,3 billion. We create exceptional brands offering real value for
money across the pricing continuum.
Distell aims to provide - an exceptional brand (capability) have to create a strategic
- at an affordable price (consumer expectation) fit to these when entering
- all over the world/ all price categories (competition ) an M&A transaction.
This is the case with regard to the Bisquit acquisition.
1|Page
, Distell Transaction 2
The Distell Group, Africa's leading spirits, wines and ready-to-drinks business has acquired top-performing
producer of Scotch whiskies, Burn Stewart Distillers Limited, for just over R2,2 billion from the Scottish based CL
World Brands Limited and Angostura Limited, owners of Hine Cognac and Angostura Bitters respectively
amongst other global brands. The strategic purchase of the fully integrated producer of both blended and single
malt whiskies will allow Distell to capitalise on the continuing global growth in whisky consumption and give it
access to scarce blended and single malt stocks from prime whisky producing regions in Scotland, while also
enhancing its global footprint.
The deal follows an equal partner venture established in 2007 between Distell and Burn Stewart in which the
two parties co-owned and marketed three Scotch Whiskies – Bunnahabhain, Black Bottle and Scottish Leader, in
sub-Saharan Africa. The agreement between Distell, CL World Brands Limited and Angostura Limited involves
the purchase of 100% of the equity in Burn Stewart whose portfolio includes three single malt whisky
distilleries; a blending and maturation facility; a bottling hall; and a dry and finished goods storage site, as well
as its in-house marketing and distribution functions. All Scotch whisky stocks currently in maturation also form
part of the transaction.
The diagram indicates Distell’s
rationale for the transaction
with Burn Stewarts Distillers.
This transaction formed a strategic fit due to the capabilities of the firm and the international competitive
environment since Distell have the products and Burn Stewarts have the international market.
Both transaction 1 and 2 will improve Distell’s competitive position because Burn Stewarts Distillers as well as
Bisquit cognac brand have the attention of the international market thus giving Distell a direct link to the market,
and give Distell’s capabilities with their products entry to new markets will be any easy transition.
The Nature and Purpose of Strategy
- Strategies are intertwined the long-term vision, plans, policies and culture of the firm.
- They cannot be static – MUST be reassessed and reformed on a continuous basis.
- What is the difference between a Generic Strategy and a Grand Strategy?
Generic/Competitive Strategies: the specific strategies that companies formulate to complement their
distinctive competencies and achieve their long-term goals.
Michael Porter identified 3 main generic strategies:
Cost leadership - sell products/ services to a broad target market
- strive to be more cost effective than competitors (NB!)
Differentiation - creating a difference in the brands products/services – creating something unique.
- choose a strategy that will be difficult for competition to copy – SUSTAINABILITY
2|Page
Learning Outcomes
Explain the purpose of a strategy
Differentiate between generic and grand strategies
Discuss the difference between Porter’s main generic strategies
Differentiate between the four groups of grand strategies
Explain the role of M&A’s in corporate strategy
Define the concepts of economies of scale and economies of scope
Distinguish between operating and financial synergies
Explain the rationale behind the horizontal and vertical mergers
Discuss the benefits associated with taking control of an undervalued company
Differentiate between downsizing and down-scoping
Introduction
- Recall from chapter 1, most M&A transactions fail due to:
Ill conceived M&A strategies – it’s important that these transactions are in line with the company’s
vision and existing strategies.
- This is important in stage one where the strategies are formed
Poorly implemented M&A strategies – if there isn’t a fit between the companies and their strategies it
makes having a sustainable competitive advantage impossible.
- This is important in stages two to four .
- Distell acquired Bisquit cognac brand to gain access to markets in China – in line with their strategy of
wanting to be a SA brand that provided liquor for people all over the world.
- Strategies should be formed to create a fit between:
1.) the firms capabilities (Distell is a marketer of fine wines, ciders & ready-to-drinks)
2.) the consumers’ expectations (affordable, lower alcohol content beverages)
3.) the competitive environment (increasing global competition)
- Leaders need to formulate strategies that will allow them to maintain leadership positions.
Distell Transaction 1
Distell crafts liquor brands for people to enjoy responsibly at every occasion the world over. Africa’s leading
producer and marketer of spirits, fine wines, ciders and ready-to-drinks, Distell employs approx. 5000 people
and has an annual turnover in excess of R12,3 billion. We create exceptional brands offering real value for
money across the pricing continuum.
Distell aims to provide - an exceptional brand (capability) have to create a strategic
- at an affordable price (consumer expectation) fit to these when entering
- all over the world/ all price categories (competition ) an M&A transaction.
This is the case with regard to the Bisquit acquisition.
1|Page
, Distell Transaction 2
The Distell Group, Africa's leading spirits, wines and ready-to-drinks business has acquired top-performing
producer of Scotch whiskies, Burn Stewart Distillers Limited, for just over R2,2 billion from the Scottish based CL
World Brands Limited and Angostura Limited, owners of Hine Cognac and Angostura Bitters respectively
amongst other global brands. The strategic purchase of the fully integrated producer of both blended and single
malt whiskies will allow Distell to capitalise on the continuing global growth in whisky consumption and give it
access to scarce blended and single malt stocks from prime whisky producing regions in Scotland, while also
enhancing its global footprint.
The deal follows an equal partner venture established in 2007 between Distell and Burn Stewart in which the
two parties co-owned and marketed three Scotch Whiskies – Bunnahabhain, Black Bottle and Scottish Leader, in
sub-Saharan Africa. The agreement between Distell, CL World Brands Limited and Angostura Limited involves
the purchase of 100% of the equity in Burn Stewart whose portfolio includes three single malt whisky
distilleries; a blending and maturation facility; a bottling hall; and a dry and finished goods storage site, as well
as its in-house marketing and distribution functions. All Scotch whisky stocks currently in maturation also form
part of the transaction.
The diagram indicates Distell’s
rationale for the transaction
with Burn Stewarts Distillers.
This transaction formed a strategic fit due to the capabilities of the firm and the international competitive
environment since Distell have the products and Burn Stewarts have the international market.
Both transaction 1 and 2 will improve Distell’s competitive position because Burn Stewarts Distillers as well as
Bisquit cognac brand have the attention of the international market thus giving Distell a direct link to the market,
and give Distell’s capabilities with their products entry to new markets will be any easy transition.
The Nature and Purpose of Strategy
- Strategies are intertwined the long-term vision, plans, policies and culture of the firm.
- They cannot be static – MUST be reassessed and reformed on a continuous basis.
- What is the difference between a Generic Strategy and a Grand Strategy?
Generic/Competitive Strategies: the specific strategies that companies formulate to complement their
distinctive competencies and achieve their long-term goals.
Michael Porter identified 3 main generic strategies:
Cost leadership - sell products/ services to a broad target market
- strive to be more cost effective than competitors (NB!)
Differentiation - creating a difference in the brands products/services – creating something unique.
- choose a strategy that will be difficult for competition to copy – SUSTAINABILITY
2|Page
