Merger & Acquisition at Universität zu Köln

CityCITY: Köln

CountryCOUNTRY: Germany

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Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Synergy Management Pitfalls: How to identify and avoid them (2. Gravity Hill)

-> When? Where? What? Why? (4) How to avoid? (3)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Impact of Divestitures on Firm Performance (Return on Assets)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

External relatedness (2)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Success Factors: Experience - Conclusion (3)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Impact of Divestitures on Firm Performance (Sales Growth and SG&A expenses)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

3 reasons why performance increases after divestiture

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Motives for Divestiture: Why do firms divest assets? (9)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

6. Discounted Future Cash Flow Value: Evaluation (3 Advantages)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

4. Value of Comparable Traded Firms and Transactions: Evaluation (4 Disadvantages)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Synergy Management Pitfalls: How to identify and avoid them (3. Amnesia)

-> When? Where? What? Why? (4) How to avoid? (3)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Negotiation: Preparation (6)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Change Management Process - 6. Plan for and create short-term wins

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Merger & Acquisition

Synergy Management Pitfalls: How to identify and avoid them (2. Gravity Hill)

-> When? Where? What? Why? (4) How to avoid? (3)

When?
Due-diligence

Where?

Integration costs

What?

Overestimation the synergy value / Underestimating the integration costs

Why?

– Lack of attention

– Hubris

– Inappropriate background of the management involved

– High costs of coordination

How to avoid?

– Build cross-functional teams from technical, operational and financial positions

Carefully assess the “integration costs”

– Obtain M&A insurance

Merger & Acquisition

Impact of Divestitures on Firm Performance (Return on Assets)

Reduction of asset base, rather than increase in EBIT (no significant effect of divestiture on EBIT), drives higher RoA

Merger & Acquisition

External relatedness (2)

Target markets: the extent to which the merging firms’ geographical markets and customers are similar

Market positioning: the extent to which the merging firms offers are similar in terms of quality or price positioning, etc.

Merger & Acquisition

Success Factors: Experience - Conclusion (3)

It is important to strike a balance between acquiring and restructuring

More acquisitions foster acquisition experience which in turn improves acquisition performance

• Undertaking too many acquisitions without major restructuring will likely lead to increasingly suboptimal integration because the businesses are out of sync

• Restructuring too often, however, will also weaken performance, because of the disruption and costs that it entails

Merger & Acquisition

Impact of Divestitures on Firm Performance (Sales Growth and SG&A expenses)

-> High performing firms use resources that they free via divestiture to build sales in their remaining businesses, as well as in any acquisitions that they undertake

-> Low performers to decrease costs

Merger & Acquisition

3 reasons why performance increases after divestiture

 Over-diversification (conglomerate discount)

Improved internal governance due to reduced agency problems (smaller scope is more easily supervised)

– Cash from divestiture can be put to more valuable use

Merger & Acquisition

Motives for Divestiture: Why do firms divest assets? (9)

• Subsidiary worth more to buyer than when operated by current owner

• Subsidiary’s value increased if it operates independently 

Change of strategic direction

Lack of strategic fit (e.g. spin-off  of Infineon Technology by Siemens AG)

• Removal of underperforming businesses (e.g. spin-off of BMS/Covestro by Bayer AG)

• Need for cash in situation of distress

• Need for cash for investment or for reducing debt (e.g. sale of Inoxum by ThyssenKrupp AG)

Risk reduction (e.g. sale of GE Capital by General Electric)

Complexity reduction, enhance focus to core competencies

Merger & Acquisition

6. Discounted Future Cash Flow Value: Evaluation (3 Advantages)

• Method is forward-looking

Contribution of intangible assets is captured

Captures time value of money

Merger & Acquisition

4. Value of Comparable Traded Firms and Transactions: Evaluation (4 Disadvantages)

No “pure-play” peer (valuation depends on choice of sample of peer firms)

Identification of truly comparable firms or transactions very difficult

Accounting data needs to be aligned

• Multiples often based on financial results of past year (i.e. lagging indicators)

Merger & Acquisition

Synergy Management Pitfalls: How to identify and avoid them (3. Amnesia)

-> When? Where? What? Why? (4) How to avoid? (3)

When?

Post-merger integration

Where?

Realized synergy

What?

Failure to achieve synergy value

Why?

– Lack of attention

– Intra-firm causal ambiguity

– Cultural differences

– Absence of integration plans

How to avoid?

Pay attention to the action plan

Carefully analyze and organize the cultural integration

– Select the correct integration approach

Merger & Acquisition

Negotiation: Preparation (6)

• Assessing buyer and target strategy

Valuing the target

• Define BATNA (Best Alternative To Negotiated Agreement) = next best option if not closing the deal
-> Select your BATNA
-> Anticipate other party’s BATNA, though difficult
-> BATNA can be non-quantifiable

• Define reservation price (highest price buyer is willing to pay; lowest price seller is willing to accept)

• Determine asking price

• When bargaining, look for trade-offs among the different dimensions of a deal, as multi-issue bargaining leads to more successful outcomes than single-issue bargaining

Merger & Acquisition

Change Management Process - 6. Plan for and create short-term wins

• Define and engineer visible performance improvements
• Recognize and reward employees contributing to those improvements

Pitfalls:

• Leaving short-term successes up to chance
Failing to score successes early enough (12-24 months into the change effort)

Gradient

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