Motive Behind Merger & Acquisition
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Transcript of Motive Behind Merger & Acquisition
Motives Behind Merger & Acquisition
Presented by: Arshad Arfin (01)
Economy of scale
Economy of scope
Synergy
New technology
Reduce tax obligations
Access to new suppliers, distributors, customers, products
MOTIVES OF MERGERS AND ACQUISITIONS
Motives behind Mergers & Acquisitions? Seller’s perspective
Strategic aspects Lack of growth potential High competition Other focus
Leading aspects Succession planning Incomplete / incompetent
management team
Financial aspects Distressed sale Realisation of earnings
(Private Equity, Venture Capital)
Rationing of financial resources
Opportunistic / “hidden” aspects Attractive offer Anticipated market
downturn
Motives behind Mergers & Acquisitions?Buyer’s perspective Strategic aspects
Synergies Economies of scale Technology/Know-how Growth Diversification (region /
product) Access to (leadership
resources)
Opportunistic reasons Asset stripping Take advantage of financial
difficulties of competitor
Irrational behaviour Empire building Re-investment of free cash
flows
Disadvantages
Competition is minimized Oligopoly market. Job cuts Price hikes Cultural integration becomes difficult Hidden liabilities
Failures of M&A because of negligence of people related issues.
4 major factors to make success M&A Responding organizations Effective communication Executive retention Cultural integration
Hrm Come Into The Picture
Extent of Acquisition
Tata Steel and Corus
The $8 billion Tata Steel-Corus deal is at No 5 among the top deals witnessed by the steel industry over the last couple of years.It is one of a very good examples of an Acquisition.
Purchaser: Tata SteelPurchased: CorusDeal: $12 billion
In 2005, Tata Steel was only the world's 56th biggest steel producer and its takeover of Corus represents its first expansion outside Asia.
The combined entity will have a turnover of $32 billion by 2011-12 with an EBIDTA margin of 25%
Extent of Mergers NTT DoCoMo and Tata
What happens when you combine Tata Teleservices with NTT DoCoMo (NYSE: DCM)? Well, it’s obvious, at least now – Tata DoCoMo. And that’s exactly the new name of the GSM operator owned by Tata Group and partly (26%) by the Japanese leading mobile operator.
The new brand along with the new website was developed by the Business and Technology Cooperation Committee that DOCOMO and TTSL have jointly established, and it symbolizes “the two companies’ strong partnership.”
NTT DoCoMo- JapanTATA- India
The deal gives Japan's largest mobile operator a foothold in the world's fastest growing mobile market
Acquisition StrategiesH
igh
Lo
w
Low High
Degree of change in acquired company
AbsorptionAcquired company conforms to acquirer-Cultural Assimilation
TransformationBoth the companies find new ways of operating- Cultural transformation
Best of BothAdditive from both sides- Cultural integration
PreservationAcquired company retains its independence- Cultural autonomy
Reverse mergerUnusual case of acquired company dictating terms- Cultural assimilation
Degree of change in acquiring company