Part 2.1-2.2

• industry consolidation

• risk taking

• expansion strategies (business cycle): “fair-weather activities”

• internationalization, international division of labor

• management of value added

• technological progress

e.g british automotive sector

• financing options

• prices

• innovation

• financial investors

• alternative asset investments

• monetary policy

• banking and financial market supervisors

e.g financing options

Fundamental motives

Speculative motives

Management motives

Seller motives

Two types of growth

Growth by increasing assets = Create size

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Growth by more efficient use of assets= Creates value

Theory: Industrial economics

Synergies in the operations of the companies

• rational, microeconomic reasoning

• M&A intends to realize synergies by combining companies

• Synergies cannot be realized by one of the companies alone

• Realization of synergies increases the companys’s value (or promotes company’s targets)

Economies of scale

Economies of scope

Economies of skills

Economies of speed

Economies of innovation

Economies of risk

synergy potential vs. realized synergies

synergies vs dyssynergies (e.g. loss of human capital,..)

• Cost synergies and revenue synergies = operating synergies

• In addition: financial, strategic and mngt. related synergies

• additive synergies (critical mass) and complementary synergies (symbiotic mergers)

• One-off and continuous synergies

• Varying “hardness” of synergies (prob. of syngeries and their realization)

• combining processes

• improved size of companies (fixed cost degression, productvity)

• specialization and learning curve effects

• economies of scale, economies of scope, economies of skills

• M&A for strategic development

• combination of two compnaies necessary to develop strategy for the future (integration of an innovator, acess to new markets)

• economies of risk, economies of innovation, economies speed

• closer related to resource-based view

• improved distribution of risks

• better access to capital markets

• reduced financing costs

• internal capital markets

• Co.insurance hypothesis -> several income sources will reduce insolvency risks

• economies of risk, economies of scale

• improved mngmt, reduction of mngmt size

• combining mngmt. strength

• removing mngmt. waeknesses of the acquired company

• economies of scale, economies of skills, economies of innovation

• highly relevant in practice; basis for almost every M&A

• alt. for realizing economies of scale arent considered

• problems in quantiffying and implementing some synergies

• threat of strategic overestimation

• disregading dyssynergies

• losses during the negotiation process

• disregarding transaction costs

• basis for acquisition price offer

1. Resources are not easy to imitate

2. Resources are not easy to substitute

3. Resources are specific to the company

4. Resources help to create value for customers

5. Incomplete factor markets

   
   

• Resources are “ all assets, capabilities, organizational processes, information, knowledge etc controlled by the firm to develop and implement their strategy

• Rational microeconomic reasoning

• M&A as an instrument of strat. mngmt. of resources (access to external resources)

• Companies as a system of company specific resources->success factors->competitive adv.

  • RBV in contrast to MBV (cost leadership, differentiation)

• Set of resources can be extended by acquiring additional resources or by merging with resiurces of another company

• Resource gaps can be closed by strategic acquisitions

• Utilization of resource complementarities

• Enhanced development potential for new resoruces

• Better protection of existing resources by acquiring other resources

  -> competitiveness

  • -> economies of speed compared to internal development

Company’s superior capabilitiy to combine existing resources create comp. adv. core competences:

1. Creating customer value

2. Uniqueness, hard to copy

3. Extendable to other markets

Competence-based approach supplements and complements the resource-based approach

=> company success is based on core competences which lead to differences in the efficiency of resoruces

- Core Competences: Capabilties specific to a company in order to successfully combine resources

E.g.: repeatable procedural interaction patterns, cognitive patterns, corp. culture

=> Complex composition of CC impedes transfer or imitation

Companies continously have to overcome challenges by actively managing resources and (core) competences.

• M&A strategy as part of corp. development

• M&A for strategic investors

• Identifying the resources and competences (acquirer and target) -> hard

• Ignoring alternatives (ccoperation)

• Realtionship btw resources and capabilities/competences has to be further elaborated

• Frequently ex-post reasoning

• High scientific relevance

Coneccted to efficiency theory and resource-based approach

Separate focus: lateral M&A

-> Increasing company value by diversifiying the company pf.

-> rational, microec, reasoning

Markowitz:

• less volatility in cf, lower bankruptcy risk

• Financial synergies: smooth cf, co insurance

1. Financial synerg. see efficiency theory

2. Resource-based approach (overcapacities of resources)

   M&A to diversify in order to reduce overcapacities (new business areas, new markets)

   • Specificity of not utilized resources-> constraints options for diversification

   • Close relationship (product, market)-> diversification in similar markets, small losses of efficiency

   Low specificity, wide options for diversification

   More successful M&A in related markets

1. No real div. but supplementation

   • Supplementing product segments (supplementing strengths/weaknesses in the prod. pf) economies of scope

   • Acquisition of innovators (instead of buying licenses)-> economies of speed

   • Acquisition of distributors (add. sales channels) -> economies of speed, exploring and entering new markets

   e.g.: 3rd M&A wave

• Perfect capital markets and principle of additivity (of cf): Sum of income streams equals the income stream of the combined (new) company

• Private inv. diversify thei pf and don’t pay premia for shares of div. firms

• Abundant resources can be sold

• Checking alt. orga. options (cooperation)

• Theoretically plausible but disappointing empirics

• Sales, outsourcing as a consequence

• => Specialization is what we observe