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CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 14
External Growth Strategies:
Mergers, Acquisitions, and Alliances
- Mergers and Acquisitions
- Strategic Alliances
External Growth Strategies:
Mergers, Acquisitions, and Alliances
2
Copyright © 2019 John Wiley & Sons, Inc..
OUTLINE
27
Global M&A
1998-2018
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Chart1
| 1998 |
| 1999 |
| 2000 |
| 2001 |
| 2002 |
| 2003 |
| 2004 |
| 2005 |
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| 2018 |
Sheet1
| Value of M&A deals (S millions) | |
| 1998 | 2288 |
| 1999 | 3034 |
| 2000 | 3167 |
| 2001 | 1530 |
| 2002 | 1058 |
| 2003 | 1210 |
| 2004 | 1721 |
| 2005 | 2531 |
| 2006 | 3371 |
| 2007 | 4191 |
| 2008 | 2531 |
| 2009 | 1757 |
| 2010 | 2117 |
| 2011 | 2655 |
| 2012 | 2700 |
| 2013 | 2800 |
| 2014 | 4802 |
| 2015 | 4660 |
| 2016 | 3850 |
| 2017 | 3522 |
| 2018 | 3458 |
Are Mergers Successful?
- Evidence from Shareholder Returns:
- Small increase in the combined value of the 2 companies involved
- Gains flow (almost) entirely to shareholders of acquired companies
- Returns to shareholders of acquiring companies negative on average
- Evidence from Accounting Profits
- Diverse findings: “…the results from these accounting-based studies are all over the map”
- Key problem: separating the effects of the merger from the many other factors that influence firms’ profitability
- Diversity of M&A
- Lack of consistent findings reflects the vast diversity in types of mergers and characteristics of the firms involved
- Even when mergers categorized (e.g. horizontal, vertical, conglomerate) no consistent performance differences
Copyright © 2019 John Wiley & Sons, Inc.
MERGERS AND ACQUISITIONS
Success and Failure among
Mergers and Acquisitions
Copyright © 2019 John Wiley & Sons, Inc.
MERGERS AND ACQUISITIONS
| Successes | Failures |
| Exxon – Mobil | Daimler - Chrysler |
| Procter & Gamble – Gillette | AOL-Time Warner |
| Walt Disney Co. – Pixar | Royal Bank of Scotland - ABN AMRO |
| Tata Motor – Jaguar Land Rover | Hewlett Packard - Autonomy |
| Sirius – XM Radio | Bank of America – Countrywide |
| Cemex – RMC | Alcatel – Lucent |
| Bank of America – Merrill Lynch | Sprint - Nextel |
| Heinz–Kraft Foods | Sears – K Mart |
| Geely–Volvo | Microsoft–Nokia |
| Dell–EMC | News Corp.–MySpace |
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Motives for Mergers and Acquisitions
Managerial Motives
- Top management remuneration depends more on firm size than profitability
- Psychological rewards--M&As project power, confer CEO celebrity status
- Imitation: the fear of not participating in an industry’s merger wave
Financial Motives
- Stock market inefficiencies—acquire undervalued companies (Berkshire Hathaway-Heinz): use overvalued equity to acquire (AOL-Time Warner)
- Quest for tax savings—cross-border acquisitions to relocate to lower tax regime (Burger King-Tim Horton)
- Financial re-engineering: debt-financed acquisitions that reduce the acquired company’s cost of capital (KKR-RJR Nabisco)
Strategic Motives
- Horizontal M&A—economies of scale and market power (A-B Inbev-SAB Miller)
- Geographical extension M&A—to enter overseas market (Geely-Volvo)
- Vertical M&A—to acquire supplier or customer (Gencore-Xstrata)
- Diversifying M&A—to enter a new area of business (Amazon-Whole Foods)
MERGERS AND ACQUISITIONS
Copyright © 2019 John Wiley & Sons, Inc.
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Managing Mergers and Acquisitions
Challenges of Pre-merger Planning
- Careful identification of the goals of M&A
- Difficulties in estimating the benefits of M&A: on average cost savings overestimated by 25%, revenue increases by 70%
Challenges of Post-Merger integration
- Problems of integration: incompatible management systems; clash of cultures; adjustment difficulties by employees of acquired company
- Building acquisition capability—managing the learning process to ensure that acquisition experience builds capability
- Marching post-merger management to the strategic goals of the merger: leveraging the firm’s existing business model (e.g. Walt Disney and Pixar) vs. reinventing the business model (e.g. HP and Autonomy)
MERGERS AND ACQUISITIONS
Copyright © 2019 John Wiley & Sons, Inc.
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Types of Strategic Alliance
Copyright © 2019 John Wiley & Sons, Inc.
Strategic Alliances:
Collaborative arrangements between two or more firms to pursue common goals
Alliance goals: technological, marketing and distribution, operational, standard setting, lobbying…
Formal (contractual agreements, written understandings) or Informal
Equity (partners take equity stakes in one another) or non-equity
Bilateral alliances (two partners), multilateral alliances (many partners), networks of alliances (Toyota supplier network; Apple “ecosystem”)
- Joint Ventures:
- Partners form a jointly-owned enterprise to pursue the goals of the alliance
STRATEGIC ALLIANCES
17
SiRF Technology Holdings Inc
Kia Motors Corp
Uni-Pixel Inc
Ube Industries Ltd
Robert Bosch Stiftung GmbH
Sala Enterprises
Bglobal PLC
Universal Display Corp
IBM Corp
SAP AG
ARM Holdings PLC
Global Foundries Singapore
Panasonic Corp
NTT
NEC Corp
Thomson SA
KT Corp
Dreamworks Animation SKG Inc
Singapore
Telstra Corp Ltd
Intel Corp
Hynix Semiconductor Inc
Nanosys Inc
TLC Corp
SIP State Property Holding
Juniper Networks Inc
Infineon Technologies AG
Reactrix Systems Inc
Quintiles Transnational Corp
Sumitomo Chemical Co Ltd
Huawei Technologies Co Ltd
Russia
Samsung Electronics
Fujitsu Ltd
Source: Prof. Andrew Shipilov
Samsung Electronics’ Alliances, 2014
STRATEGIC ALLIANCES
ISUZU
SUZUKI
TOYOTA
IBC (built vans in the UK, 1989-98)
GM
NUMMI
(produced cars in
the US, 1984-2009)
Production JV; 10% ownership
40% owned
60%
owned
50% owned
50%
owned
SAAB
50% owned 1989-2000
FIAT
Technical collaboration, joint purch-asing & 20% ownership, 2000-6
FAW
JV producing light trucks in China
DAEWOO
50.9% owned; technical &
production collaboration
AVTOVAZ
JV produces
cars in Russia
SAIC
Production JVs in China
Indonesia, India
PEUGEOT
Joint development
& purchasing
HINDUSTAN MOTORS
Production JV in India, 1994-99
NISSAN
Product sourcing
General Motors’ International Alliances
STRATEGIC ALLIANCES
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18
Management Issues
Copyright © 2019 John Wiley & Sons, Inc.
Motives:
To exploit complementarities among the resources and capabilities of different companies, e.g. airline alliances allow access to members’ route networks; Bulgari and Marriott combine to operate luxury hotels
These benefits include: Economizing on investment, Speed, Risk sharing, Learning (capability acquisition)
Challenges:
Need for relational capability: building trust, developing knowledge-sharing and coordination mechanisms
Managing the relationship: greatest benefits often involve greatest management challenges—e.g. cross-border alliances
Sharing of benefits: determined by
strategic intent of the partners (Which partner is clearer about what it wants from the alliance?)
appropriability of the contribution (Which partner’s resources and capabilities are easier to capture)
absorptive capacity (Which partner is the faster learner?
STRATEGIC ALLIANCES
17
Do the firm’s resources and capabilities fit the needs of the current strategy?
YES
INTERNAL DEVELOPMENT
NO
Contract or inter-firm combination?
- Parties’ level of agreement over the value of the required resources
HIGH
LOW
Alliance or acquisition?
- Desired closeness with resource provider
CONTRACT
HIGH
LOW
ALLIANCE
ACQUISITION
STRATEGIC ALLIANCES
Choosing the Right Growth Path
Copyright © 2019 John Wiley & Sons, Inc.
*
CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 15
Current Trends in
Strategic Management
The New Environment of Business
New Directions in Strategic Thinking
Redesigning Organizations
The Changing Role of Managers
Current Trends in
Strategic Management
Copyright © 2019 John Wiley & Sons, Inc.
OUTLINE
The Turbulent 21st Century
2000: Collapse of “New Economy”
- Dot.com bubble bursts
- March 2000 NASDAQ
at all-time peak
Terrorism
- Attacks of September 11, 2001
- Invasion of Afghanistan
& Iraq
Volatile Markets
E.g. Brent crude June ’09 $148; Dec. ‘09 $38
Decline of US
world influence
--emergence of a
multi-polar world
Globalization reverses
The rise of economic nationalism
2008-9:
Financial crisis
The Third Industrial Revolution:
- Digital technologies
- Intelligent systems
- Disintermediation of human beings
Demands of society
- Social & environmental responsibility
- Ethics & fairness
- Quest for meaning
Natural Disasters
Hurricanes, earthquakes, fires
2011:
Arab Spring
THE NEW ENVIRONMENT OF BUSINESS
Copyright © 2019 John Wiley & Sons, Inc.
The New Politics
- The decline of liberalism
- The rise of demogogues
- The politics of identity
Digital Technology
- Destruction of industries: travel agencies, bookstores, broadcast TV
- Rise of new industries: e-commerce, ride-share services, audio & video streaming, shared ownership,
- Transformation of industries: financial services, communications, dating
Social Forces and the Crisis of Capitalism
- Twin pillars of Western civilization—liberal democracy & market capitalism—undermined by inequality, intolerance, decline of rationalism
Competition
- Rise of dominant firms: in mature sectors (A-B Inbev, Starbucks, Boeing, Walmart; in new industries (Alphabet, Apple, Alibaba, Amazon, Facebook, Tencent)
- New competitors from emerging markets (Huawei, Haier, Infosys, Embraer)
Systemic Risk
- In interconnected world,initiasl disturbances are amplified and transmitted: e.g. Financial crisis of 2008-9, Arab Spring, Islamic State
Forces Shaping the Business Environment
THE NEW ENVIRONMENT OF BUSINESS
Copyright © 2019 John Wiley & Sons, Inc.
Ratio of average CEO compensation to
that of the average worker, USA 1965-2016
THE NEW ENVIRONMENT OF BUSINESS
Chart1
| 1965 |
| 1970 |
| 1975 |
| 1980 |
| 1985 |
| 1990 |
| 1995 |
| 2000 |
| 2005 |
| 2010 |
| 2015 |
| 2016 |
Sheet1
| Ratio of CEO pay to that of average worker | |
| 1965 | 20 |
| 1970 | 22 |
| 1975 | 25 |
| 1980 | 32 |
| 1985 | 51 |
| 1990 | 62 |
| 1995 | 123 |
| 2000 | 384 |
| 2005 | 335 |
| 2010 | 278 |
| 2015 | 286 |
| 2016 | 271 |
NEW DIRECTIONS IN STRATEGIC THINKING
Managing Options
- Turbulence increases option values
- Strategies to create options: lower
financial leverage, experimentation,
exploratory R&D, alliances,
product platforms
Seeking
More Complex Sources
of Competitive Advantage
- Multiple layers of competitive advantage
- Exploiting cross-business linkages
- Emphasis on innovation and new
business development
Understanding
Strategic Fit
- Complementarity of management
practices
- The implications of complexity
- Contextuality of linkages
Reorienting
Corporate Objectives
- Emphasis on stakeholder goals
and societal role of firms
- Focus on profit drivers rather
than stock market valuation
Rethinking Strategy
© 2019 Robert M. Grant
www.contemporarystrategyanalysis.com
Strategy
in a Digital World
- See next slide
4
4
The strategic characteristics of digital industries
Industry
structure
Importance of
complementary products
Network externalities
Complex industry
Structures (“ecosystems”)
Potential for complex and innovative business models
Competitive
advantage
Fast cycle innovation and product development
Swift erosion of competitive advantage (unless supported by network dominance)—hence need for speed
Ease of imitation of successful strategies
Critical importance of timing: strategic windows of short duration
Platform competition and winner-take-all markets)
Strategic characteristics
Strategy implications
Fungibility of IT resources
Ease of diversification between technology-based industries
NEW DIRECTIONS IN STRATEGIC THINKING
Copyright © 2019 John Wiley & Sons, Inc.
The New Environment of Business
Multidimensional
structures
Informal
organization
REDESIGNING ORGANIZATIONS
The Emerging Shape of the Business Enterprise
New Directions in Strategic Thinking
Self-
organization
Permeable
Boundaries
Copyright © 2019 John Wiley & Sons, Inc.
4
4
THE REQUIRED
COMPETENCIES OF
BUSINESS LEADERS
- motivating colleagues
- cultivating sense of purpose
- cross-cultural flexibility
- self-awareness
- resolve
- proactivity
- problem-solving
- relationship building
- vision
THE LEADERSHIP
NEEDS OF
ORGANIZATIONS
The ability to:
build confidence
build enthusiasm
cooperate
deliver results
form networks
influence others
use information
New Models of Leadership
Copyright © 2019 John Wiley & Sons, Inc.
THE CHANGING ROLEOF MANAGERS
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