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M&A
M&A Notes
41
Business
Graduate
04/30/2009

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Term
Alliance Types by Ownership Characteristics:
Definition
(1) Cooperative / Non-Equity
(2) Equity Based
(3) Franchise Alliance
(4) Joint Venture
Term
Strategic Alliance Partner Types:
Definition
(1) Vendor / Supplier
Ex: Toyota
(2) Research/Product Development Firms. Ex: Biotech Firms
(3) customers
(4) other same channel positioned firms (5) internet firms
(6) competng firms
Term
3 Types of strategic alliance objectives
Definition
(1) Basic Objectives
(2) External Driven
(3) Internal needs based
Term
Strategic Alliance Basic Objective Examples
Definition
(1) Risk Reduction
(2) Achieve Economies of Scale
(3) Technology Exchange
(4) Blocking competition
(5) Overcoming Gov't Mandated trade/investment barriers
(6) Facilitating International Expansion
(7) Linking complimentary contributions of partners in value chain: Quasi-Vertical Integration
Term
The REALITY of strategic alliance basic objectives
Definition
the alliance is both political and economic based: (1) it depends on internal political champions and (2) key stakeholder positions
Term
Strategic Alliance: External Force Objective Examples
Definition
(1) Turbulence in world markets
(2) Economies of scale as comptv adv.
(3) Globalization of industry
(4) Globalization of technology
(5) Rapid changing of tech
(6) shortening prdct life cycle
Term
Strat. Alliance: Internal Driven Objective Examples
Definition
(1) Gain skills/resources
(2) learning
(3) spread financial risk
(4) speed to market - 1st mover adv.
(5) cost minimization
(6) if poor performance - use to change business formula/model
Term
Strategic Alliance: 3 types of TRUST
Definition
(CUBs) --
(1) Calculating
(2) Understanding
(3) Bonding
Term
TRUST: Calculating
Definition
Calculate the costs and benefits of actions to both parties. Cost of maintaining the relationship.
Term
TRUST: Understanding
Definition
(1) Sharing common ways of thinking.
(2) Understanding thinking of a partner.
(3) Helps predict partner actions and behaviors.
Term
TRUST: Bonding
Definition
(1) Sharing a common identification
(2) Hold Common values and obligations
(3) understanding others wants
(4) developing long-term relationships
(5) bonding b/w individuals
Term
Phases of strat alliance development over time
Definition
(FInE)
Formation - Implementation - Evolution
Term
Early stages of Strat Alliance need to:
Definition
Explore legal and institutional safeguards. Communicate clearly and specifically who is responsible for what.
Term
TRUST building initiatives
Definition
(1) Open communication
(2) Common controls and information systems.
(3) Conflict resolution process
(4) Clearly define mutual benefits
(5) Share information and ideas
Term
Joint Collaboration Competitive Advantage
Definition
(1) Analyze Strategic Fit.
(2) Analyze Cultural Fit.
(3) Identify each Org's Goals.
(4) Develop methods of working together.
(5) Identify each partners contributions.
(6) Identify each partners competencies.
(7) Agreement on Termination Formuls.
Term
Types/examples of Partner Assets
Definition
(1) fixed assets
(2) working capital
(3) expertise
(4) contact network
(5) brand names
(6) technology
Term
Strategic Alliance Valuation depends primarily on?
Definition
(1) The Alliance Form: Joint Venture or Collaboration
(2) Contributions from each partner
Term
5 Key Rules of Engagement
Definition
(1) Define Roles, Responsibilities, and Geography (2) Put an escalation process in place - dispute resolution (3) Develop Communication Plan (4) Develop Customer Proposal - customer deliverables (5) Successful delivery of solution
Term
Stanford VIDEO: key points for successful merger/partnership
Definition
(1) identify what bothers you about the merger. (2) define what the key characteristics of the new blended culture should be. (3) Develop a game plan to achieve #1 & 2.
Term
Culture Due Diligence - 2 steps:
Definition
(1) Identify Differences. (2) What to do about differences
Term
2 Types of Knowledge:
Definition
(1) Tacit Knowledge - Difficult to verbalize, formalize, communicate.
(2) Explicit Knowledge - can verbalize, formalize and communicate. Can retain.
Term
Asymmetric learning
Definition
recognize that one party will learn more than the other, so you must find ways to offset this
Term
Barriers to learning
Definition
(1)not a strategic Priority.
(2)no rewards for learning, learning responsibilities not clear.
(3) HR Policies and culture issues.
Term
Keys to effective alliance
Definition
(1) win-win benefits for both parties.
(2) cooperation b/w parties.
(3) open communication.
(4) Executive/Public commitment.
(5) creation of trust b/w both parties
Term
Alliances can be used to:
Definition
(1) gain early mover advantage. (2) lock in customers. (3) lock out competition. (4) gain synergy of resources and thinking.
Term
How is Toyota's supplier relationship different than other companies
Definition
(1)embrace suppliers as partners
(2)encourage knowledge sharing with them
(3)help suppliers fine tune their operations
Term
Toyota: consulting/problem solving
Definition
Toyota provided expert consultants to assist suppliers in japan free of charge
Term
Toyota competitive advntg from suppliers:
Definition
providing suppliers with knowledge and tech to improve their productivity for just their operations that are dedicated to Toyota
Term
Major reason why 70-75% of M&A's fail?
Definition
culture issues
Term
Forces shaping/causing M&A growth:
Definition
(1)globalization
(2)changing economic realities
(3)increased competition
(4)technology/R&D
(5)Financial buyers - Private Equity
Term
underlying strategy of M&A
Definition
Focus on "doing the deal".
underlying strategy is NOT the same as Deal Structure.
Term
Why do OVERCAPACITY M&A's fail?
Definition
Well established/large companies have entrenched processes and values -- makes it difficult to change. Acquirer has little experience with mega-deals
Term
Overcapacity M&A Example:
Definition
Daimler-Chrysler: Daimler was an engineering centered company.
Chrysler was more sales and mktg focused.
Term
Geographic Roll-up M&A
Definition
occur at earlier stage in industry life cycle than OVERCAPACITY M&A. Usually fragmented and smaller industries
Term
Product or Market Extension M&A:
Definition
usually involve moving into foreign markets. success depends, in part, on companies' size. generally more successful when big company acquires small company.
Term
Product or Market Extension M&A: GE Example
Definition
Success b/c paid attention to important differences b/w GE and the acquisition. GE systems were introduced slowly over time. *Got newly acquired company managers to use GE's resources to grow business.
Term
M&A as a substitute for R&D
Definition
This is a response to shortening product life cycles - builds market position quickly. IT and Biotech good examples.
Term
M&A as R&D: What is the huge challenge with this type of M&A?
Definition
Holding on to key people - acquisition is usually not successful if key experts leave. Speed is also an issue - speed of tech/market change vs. speed of company integration.
Term
Leverage Buyouts (LBO) typically used by
Definition
Private Equity. Firm is purchased and converted into a private company; heavy use of debt typical.
Term
life cycle stage of business
Definition
start ups -- early stage -- later stage -- mature under valued/turnaround firms
Term
industry convergence M&A
Definition
industry with disappearing boundaries - inventing new industries. Ex: AT&T purchasing companies to converge computers and telecom. Ex 2:Sears entering financial services as an extension of retail.
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