Lecture notes
Lecture 13
- Institution
- Royal Holloway University Of London
MERGERS AND ACQUISITIONS
[Show more]
Seller
Follow
Content preview
19/11/2019LECTURE 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
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller matilde01_bianchi. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £2.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53068 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now