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STRATEGIC MANAGEMENT

Merger and Acquisition Strategies

Group 6
Muchlis Muttaqin 1506809015
Novriansyah 1506809116
Rudy Franclin Tampubolon 1506809210
Sinta Ayu Kurniawati 1506809255
Sobar Rachmayana 1506809274
Definition of Acquisition and Merger

Acquisition
One firm buys a controlling interest in another.

Merger
Two firms agree to integrate their operations into a
single entity
When it first happened?

Most histories of merger and acquisition begin in


the late 19th century. However, merger and
acquisition coincide historically with the existence
of the companies. For example, in 1708, The East
India Company merged with an erstwhile
competitor to restore its monopoly over Indian
trade.
Popularity of Merger and Acquisition Strategies
In Firms Competing In The Global Economy
Reasons?

Increased
Market Power
Overcoming
Entry Barriers
Cost of New Product development
and Increased Speed to Market
Merger and
Acquisition Lower Risk Compared to
Developing New Product

Increased Diversification
Reshaping the Firms
Learning and Developing Competitive Scope
New Capabilities
Horizontal M&A
In the same industry
Increased Market
Power
Able to sell its
goods or services
above competitive
levels Vertical M&A
(Capabilities) Support / Downstream
Costs are lower
than competitors
(Size of the firms and
its resources / Assets)
Related M&A
Highly related industry
Overcoming Entry Cross Border
Barriers Acquisition
Difficulty for new Between companies
entrants to overcome with headquarters
Gains immediate access in different
to a market countries
The New M&A
Playbook
By Clayon M Christensen, Richard Alton,
Curtis Rising, and Andrew Waldeck
Introduction

Companies spend more than $2 trillion on


acquisitions every year
Yet study after study put the failure rate of
mergers and acquisitions somewhere between
70% and 90%
Companies too often pay the wrong price and
integrate the acquisition in the wrong way
The success or failure of an acquisition depend on
how they do the integration
Reasons to Acquire Company

To boost company performance, to cut cost

Unrealized about how much of a boost to expect


Pay to much for the acquisition
IT Dont understand how to integrate it
FAIL,
WHY?
?To reinvent business model and thereby
fundamentally redirect your company
Almost nobody understand how to identify the best
targets to achieve that goal
How much to pay for them
And how or whether to integrate them
To Integrate, we must able to describe
exactly what we are buying
BOOSTING CURRENT PERFORMANCE
Acquiring Resource to..

To Command Premium Price


To improve a product or service thats still developing, one whose
customers are willing to pay for better functionality, a faster route to
product improvement than internal development (ex.to get
component, technology, talent, intellectual property, scientist,
engineer)
For Lower Cost
Using the target resources in such away that scale economic can
drive down fixed cost (such as manufacturing, distribution, and
sales)
The Temptation of One-Stop Shopping
Acquiring new customer, acquisition made for the purpose of
Cross-Selling product
Based Resources, they have two deal model
approach :

Leverage Business Model (LBM)


Resources extracted into the parent company, resource
still exist because being part of the parent company

Reinvent Business Modes (RBM)


Company buy another firm, operate it separately, and
use it as a platform for transformative growth but it cant
routinely plug other elements of an acquisitions
business model therefore the profit formula and process
REINVENTING BUSINESS MODELS

To lay the groundwork for long-term growth, by


creating new way of doing business
Acquiring Disruptive Business Model
An disruptive model (company) that create new market and value
network and eventually disrupts an existing market and value
network, displacing established market leading firms and alliances

Acquiring to Decommoditized
One of the most effective way to defense against commoditization, as
a process by which goods that have economic value and are
distinguishable in term of attributes (uniqueness and brand) end up
becoming simple commoditizes in the eyes of the market or customer
Mergers and Acquisitions: Overcoming
Pitfalls,
Building Synergy, and Creating Value
(Hitt et al., 2009)

Key variables
Acquisition premium
Divestiture of acquired business
Acquisition capability development
Technological learning in acquisition
Cross-border mergers and acquisitions
Variables

Top three research variables include :

Firms relatedness (58%)


Firm size (52%)
Acquisition experience (28%)
Acquisition premiums

Price paid for target firm that exceed its pre-


acquisition market value.

Purpose of making acquisition premium :


- Potential synergy
- To entice target firm shareholder to sell to the
parent
Acquisition premiums
(contd)

Reason of paying high premiums :

- Opportunistic behaviour (Trautwein, 1990)


- Executive overconfidence/ hubris (Roll, 1986)

(Sirower, 1997) :
- Unfamiliarity with critical elements of strategy
- Lack of adequate knowledge of target
- Unexpected problem during integration process

- Relationship between individual of two firms (Haunschild, 1994)


- Multiple bidder for the target (Coff, 2002)
Acquisition premiums
(contd)

Paying high premiums offently result in negative


effect.

- Burden of manager to recoup the premium


(Shirower, 1997)
- Restructuring process, consolidate asset and sell
redundant (Cascio, Young, & Morris, 1997)
- Large scale workforce reductions (Krisnan et al,
2007)
Divestiture of acquired businesses

When acquired firm will be divested :


- Acquired firm is performing poorly
- Organizational inertia to maintain acquisition is
low
- Businness unit is smaller
- Acquired firm young and small
- Acquiring firm has divestiture experience
Divestiture of acquired businesses
(contd)
Why take too long in divestiture :

Avoid divesting businness due to commitment


to the prior decision (Shimizu, 2007)

Overall parent performance is strong and has


higher slack (Hayward & Shimizu, 2006)

Changing in CEO or more independent


directors added to the board

Non-business factors (pshychological and


organizational)
Acquisition capability development

Synergy is created by complementary


capabilities

Value created if valuable capabilities


in acquired firm fully integrated into
and absorbed by parent firm

The learning in acquisition process


and the integration is crusial to its
success (Hit et al., 2001)
Technological learning in acquisitions

alternative strategy for obtaining the


knowledge necessary to create
innovations with the speed needed and
the novelty necessary to either maintain
a competitive advantage or to build a
new one (King et al., 2008; Makri, Hitt,
& Lane, in press; Uhlenbruck, Hitt, &
Semadeni, 2006)

combining science knowledge from two


firms can help to produce more novel
innovations, while combining
technological knowledge often leads to
more incremental innovations
Cross-border mergers and acquisitions

Effectively enter and/or enrich their competitive position within


international markets (Brakman, Garita, Garretsen, & Marrewijk,
2008)

Means of entering foreign markets (Isobe, Makino, &


Montgomery, 2000)

Acquisitions help to overcome liability of foreignness in the host


country

Integration is a critical element and is more complex and


challenging when the institutions differ greatly between the
home and host countries (Chakrabarti, Jayaraman, &
Mukherjee, 2009)
POSTACQUISITION CULTURAL
INTEGRATION IN MERGERS &
ACQUISITIONS: A KNOWLEDGE
BASED APPROACH
Lakhsman, C. (2011)

This journal is a conceptual gap


research.
This journal proposes a model to
examine the nature and features of
integration to see the cultural and
organizational mechanism leading to
integration effectiveness.
Limitation. The model should be tested.
Successfully testing this model can
open doors to further refining both the
models leadership component and its
knowledge management mechanisms.
M&A Phenomenon Remarkable number of
The literature on mergers failures in M&As are due
and acquisitions and to poor postacquisition
postacquisition integration integration (Bjorkman,
is characterized by a lack Stahl, & Vaara,2007;
of adequate theoretical Larsson & Lubatkin, 2001;
frameworks (Bjorkman et Zollo &Singh, 2004).on
al., 2007; Cording et al., integration (Bjorkman,
2008; Schweizer, 2005; Stahl, & Vaara,
Weber, Shenkar, & Raveh, 2007; Larsson & Lubatkin,
1996) 2001; Zollo &
Singh, 2004)

https://uk.sagepub.com/en-
gb/asi/author/c-lakshman

Integration effectiveness
Examining culture should be the key
differences and cultural phenomenon to be
distance (e.g., Morosini, explained (see Schweiger
Shane, & Singh, 1998) & Goulet, 2005, for
example)
The Model
Focusing on causal ambiguity
and its role in the integration
processes of acquisitions.
Examine the need to reduce
causal ambiguity and the role
knowledge leadership plays in
reducing causal ambiguity and
in establishing the processes
of cultural knowledge transfer.
Focus on three crucial
processes of cultural
knowledge transfer and their
impact on the effectiveness of
acquisition integration: (a)
sociocognitive knowledge
sharing, (b) integrating cultural
knowledge by involving target
personnel, and (c) early
involvement of target
personnel in designing the
integration process.
Causal Ambiguity
Ketidaksepahaman atas interpretasi suatu
hal. Ketidakmampuan menyamakan
persepsi atas suatu hal (Sobar, 2016).
This has led to ineffective use of resources
and skills.
According to the journal, it may come from
:
- organization of the firm
- cultural distance
- knowledge complexity
- top and middle manager (ex. Dwi Soetjipto.
Road to Semen Indonesia : Transformasi
Korporasi Mengubah Konflik Menjadi
Kekuatan)
Knowledge Leadership
The model developed
here focuses on three
variables related to the
integration leader that
establish the climate for
a smooth transfer of
cultural knowledge.
These three variables
are (a) causeeffect
beliefs, (b) the
integration of a
motivation system that
the leader establishes to
integrate the two
cultures smoothly, and
(c) the leaders process
of resolving conflicts
using accurate and
unbiased attributions.
CauseEffect Beliefs of Integration Leaders
Confidence and clarity or
firmness in the beliefs
executive leaders hold is
strongly related to
organizational
effectiveness, through
implementing decisions
that follow from the cause
effect beliefs.
The clarity of causeeffect
beliefs on the part of
executives was strongly
related to reducing
uncertainty among those
implementing strategy.
Integration leaders can
reassure their subordinates
and team members and
reduce causal ambiguity in
both their minds and in the
contexts setting
Motivation for Cultural Integration
Integration leaders help
establish motivational
systems appropriate to
the type of culture
required in the merged
entity by shaping reward
systems and fine-tuning
them from what exists
prior to the acquisition.
Establishing motivation
for cultural integration
helps reduce ambiguity
by removing any
confusion about desired
behaviors on the part of
the integration
participants.
Integration Leader Resolving Conflicts
Stage of integration :
contact, conflict, and
adaptation
(Nahavandi &
Malekzadeh, 1988).
Leader conflict
resolution by using
accurate and
unbiased
attributions, for
example, should
serve as an effective
means to reduce
conflict and thereby
motivate integration
participants to be
more involved in the
integration effort.
Reducing Causal Ambiguity
Proposition 4a: The extent
to which causal ambiguity
is reduced in the setting
and in the minds of the
participants in a
postacquisition integration
is positively related to
successfully establishing
the sociocognitive
mechanisms of cultural
knowledge sharing.
Proposition 4b: The extent
to which causal ambiguity
is reduced in the setting
and in the minds of the
participants is positively
related to target personnel
being involved in and
participating in the
postacquisition integration
process.
Target Involvement in the Integration Process
Participant
involvement in
diffusing knowledge
and various learning
processes is critical to
the knowledge
diffusion initiatives
being successful,
without which such
efforts can be
seriously hampered.
In the postacquisition
integration context,
effective knowledge
sharing cannot take
place without target
personnel being
actively involved in the
process of integration.
Early Target Involvement in Integration Process Design
Early active involvement in
the design stages is
fundamental for the
merged entity to realize
synergies that might be
realized by identifying the
entities complementary
capabilities and their
interdependencies.
Early involvement is also
important to capture the
capabilities to leverage
these interdependencies,
which is the central
objective of the
postacquisition integration.
Early involvement of target
personnel (or, alternatively,
personnel from both sides)
can determine success and
failure in postacquisition
integration.
C. LAKSHMAN

DWI SOETJIPTO

DUKUNGAN
PARTISIPASI
LINGKUNGAN:
AKTIF
INTERNAL DAN
KARYAWAN
EKSTERNAL

SISTEM
KUATNYA INTEGRASI
KEPEMIMPINAN YANG
TRANS FLEKSIBEL
FORMA
SI
Problems in Achieving M&A Success?

Integration
Inadequate Difficulties
Evaluation of Target

Large of
Extraordinary Debt

Inability to
Problems
Achieve Synergy

Too Much
Diversification

Managers Overly
Focused on Acquisition Too
Large
EFFECTIVE M&A
Attributes Results
1 Acquired firm has assets or resources that High probability of synergy and
are complementary to the acquiring competitive advantage by maintaining
firms core business strengths
2 Acquisition is friendly Faster and more effective integration
and possibly lower premiums
3 Acquiring firm conducts effective due Firms with strongest complementarities
diligence to select target firms and are acquired and overpayment is avoided
evaluate the target firms health
(financial, cultural, and human resources)
4 Acquiring firm has financial slack (cash Financing (debt or equity) is easier and
or a favorable debt position) less costly to obtain
5 Merged firm maintains low to moderate Lower financing cost, lower risk (e.g., of
debt position bankruptcy), and avoidance of trade-offs
that are associated with high debt
6 Acquiring firm has sustained and Maintain long-term competitive
consistent emphasis on R&D and advantage in markets
innovation
7 Acquiring firm manages change well and Faster and more effective integration
is flexible and adaptable facilitates achievement of synergy
Conclusion

Mergers and acquisitions can sometimes be a highly


effective and successful strategy, but this strategy
must be very carefully designed and implemented.
(Mergers and Acquisition, Hitt et all, 2009)
END OF SLIDE

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