19/11/2019
LECTURE 13: MERGERS AND ACQUISITIONS
TODAY’S TOPICS TODAY’S LEARNING OUTCOMES
• Merger trends By the end of this session you will be able to:
• Merger motivations • Understand trends in M&A activity
o Capacity reduction • Explain motivations for M&A
o Acquire brands and IPR • Explain the barriers to M&A
o FDI arbitrage
• Hostile and negotiated takeovers MERGERS AND ACQUISITIONS:
• Risks to M&A • when a large organization buys a small
organization
• A good way to grow… …good way to destroy value
MERGERS COME IN WAVES
• Takeovers are an on-going feature of the business world
• Occur in ‘merger waves’ as a trend
• Rarely a ‘relationship of equals’
• Acquirers dominate and discriminate against the smaller unit’s management
• Most M&A acquisitions are takeovers - the acquirer gets control of the acquired
Many firms sell the same products, there’s not a lot of differentiation.
When one of these organizations gets big enough it will buy a smaller competitor, this is why we
see more mergers and acquisitions.
WAVE TRENDS
• Acquisitions are frequent – especially for SMEs
• M&A refers to larger corporate activity
• The most recent waves: 1998-2001 then the build-up to GFC in 2007
• Fuelled by big personalities and cheap credit
• More acquisitions of European businesses by Asian corporations and Middle eastern investors
At the moment it is really cheap to buy money.
WAVE TRENDS: MARKET CONSOLIDATION
• Acquisitions are quicker and easier than greenfield
• Moved into the US, Germany and Netherlands
• Funding circle UK based
• P2P is disrupting banks
WHAT PERCENTAGE OF M&A DEALS FAIL?
A. 10-20%
B. 20-40%
C. 30-50%
D. 40-80%
, Answer is D
TAKEOVERS OFTEN FAIL
• Few takeovers are stunning, many are mediocre successes, but most are failures
• Winners are the shareholders of the acquired firms
• Between 1998 through 2001, shareholders of acquiring firms lost $240 billion; shareholders of the
target firms gained $103 billion
• Acquisitions are often overpriced, and value is destroyed
Units are overpriced and/or integration is poor
Often is the company that acquire the small firm gets carried away, so for example a competitor
may try to buy the same company. And that company, which was originally really cheap to buy,
becomes really expensive really fast.
REASONS FOR TAKEOVERS
• (Motive 1) Capacity reduction T
• (Motive 2) Acquisition of brands or technical knowledge O
• (Motive 3) FDI Arbitrage D
• Defragmentation/consolidation
• Expansion in domestic or foreign markets
• Control of the value chain Controlling the value
• Diversification chain for essay
• ‘Empire building’ WPP’s Sorrell
• Analysts/shareholder demands
• Thrill of the chase/executive egos
• Grabbing a bargain
• Multiple combinations of the above
MOTIVE 1: CAPACITY REDUCTION …
• Industries with overcapacity are large and mature
• Becomes difficult to be profitable
But how can you reduce capacity?
Capacity reduction can occur by ‘corporate failure’ Or Through mergers and acquisitions
… MORE THAN BEETLES…
Buy your competitors and diversify
VW ‘secure’ in scandal
LECTURE 13: MERGERS AND ACQUISITIONS
TODAY’S TOPICS TODAY’S LEARNING OUTCOMES
• Merger trends By the end of this session you will be able to:
• Merger motivations • Understand trends in M&A activity
o Capacity reduction • Explain motivations for M&A
o Acquire brands and IPR • Explain the barriers to M&A
o FDI arbitrage
• Hostile and negotiated takeovers MERGERS AND ACQUISITIONS:
• Risks to M&A • when a large organization buys a small
organization
• A good way to grow… …good way to destroy value
MERGERS COME IN WAVES
• Takeovers are an on-going feature of the business world
• Occur in ‘merger waves’ as a trend
• Rarely a ‘relationship of equals’
• Acquirers dominate and discriminate against the smaller unit’s management
• Most M&A acquisitions are takeovers - the acquirer gets control of the acquired
Many firms sell the same products, there’s not a lot of differentiation.
When one of these organizations gets big enough it will buy a smaller competitor, this is why we
see more mergers and acquisitions.
WAVE TRENDS
• Acquisitions are frequent – especially for SMEs
• M&A refers to larger corporate activity
• The most recent waves: 1998-2001 then the build-up to GFC in 2007
• Fuelled by big personalities and cheap credit
• More acquisitions of European businesses by Asian corporations and Middle eastern investors
At the moment it is really cheap to buy money.
WAVE TRENDS: MARKET CONSOLIDATION
• Acquisitions are quicker and easier than greenfield
• Moved into the US, Germany and Netherlands
• Funding circle UK based
• P2P is disrupting banks
WHAT PERCENTAGE OF M&A DEALS FAIL?
A. 10-20%
B. 20-40%
C. 30-50%
D. 40-80%
, Answer is D
TAKEOVERS OFTEN FAIL
• Few takeovers are stunning, many are mediocre successes, but most are failures
• Winners are the shareholders of the acquired firms
• Between 1998 through 2001, shareholders of acquiring firms lost $240 billion; shareholders of the
target firms gained $103 billion
• Acquisitions are often overpriced, and value is destroyed
Units are overpriced and/or integration is poor
Often is the company that acquire the small firm gets carried away, so for example a competitor
may try to buy the same company. And that company, which was originally really cheap to buy,
becomes really expensive really fast.
REASONS FOR TAKEOVERS
• (Motive 1) Capacity reduction T
• (Motive 2) Acquisition of brands or technical knowledge O
• (Motive 3) FDI Arbitrage D
• Defragmentation/consolidation
• Expansion in domestic or foreign markets
• Control of the value chain Controlling the value
• Diversification chain for essay
• ‘Empire building’ WPP’s Sorrell
• Analysts/shareholder demands
• Thrill of the chase/executive egos
• Grabbing a bargain
• Multiple combinations of the above
MOTIVE 1: CAPACITY REDUCTION …
• Industries with overcapacity are large and mature
• Becomes difficult to be profitable
But how can you reduce capacity?
Capacity reduction can occur by ‘corporate failure’ Or Through mergers and acquisitions
… MORE THAN BEETLES…
Buy your competitors and diversify
VW ‘secure’ in scandal
