Chapter 15
External Growth Strategies: Mergers,
Acquisitions & Alliances
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
1
External Growth Strategies: Mergers,
Acquisitions & Alliances
OUTLINE
• Mergers and Acquisitions: Causes and
Consequences
• Strategic Alliances— Motives
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
2
The Motives for Mergers & Acquisitions
• Acquiring Resources or Capabilities
o Some resources and capabilities not transferable or replicable:
to obtain them may require acquiring the entire company (e.g.
Disney and Pixar)
o Acquisitions are especially important for established companies
seeking to acquire emerging technologies (during 2005-11,
Google acquired 95 firms and Microsoft 71)
• Cost Economies and Market Power
o
Horizontal mergers (especially between competitors) offer
clearest benefits from mergers in terms of scale economies
and market power (e.g. United and Continental airlines; Exxon
and Mobil)
• Geographical Extension
o
Acquisition is the most popular means of entry into foreign
markets by companies. Allows acquiring firm to gain critical
mass and overcome “liabilities of foreignness”
• Diversification
o Acquisition is the predominant mode of diversification by firms
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
3
Consequences of Mergers & Acquisitions
• Financial Outcomes
o Many studies, inconsistent results
o In terms of returns to shareholders, main finding is that
shareholders of acquiring firms lose; shareholders of acquired
firms gain; combined impact a v. small gain
• If acquisitions destroy value for the acquirer, why do they
happen?
o
o
o
Motivated by managerial goals (e.g. growth)
Imitation (e.g. internationalization by banks, merger wave
among petroleum firms)
Acquiring firms overestimate the benefits, underestimate the
costs
• Learning effects
o
Some firms more successful acquirers than others. Acquisition
capability the result of (a) learning through experience (b)
systematizing the approach to acquisition management
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
4
Biggest Mergers & Acquisitions, 1990-2012
Year
2000
2000
1999
Purchaser
Purchased
Value ($bn.)
Mannesmann
Time Warner
Warner-Lambert
ABN-AMBRO
183
165
90
79
2000
2004
1999
2006
2001
2009
1999
2004
1999
2002
2007
2004
2007
2008
Vodafone Airtouch
Online Inc.
Pfizer
Royal Bank of Scotland, Banco
Santander, Fortis
Glaxo Wellcome Plc.
Royal Dutch Petroleum Co.
Citicorp
AT&T Inc.
Comcast Corporation
Pfizer
SBC Communications
Sanofi-Synthelabo SA
Vodafone Group
Pfizer Inc.
Enel SpA
JP Morgan Chase & Co
Procter & Gamble
InBev
SmithKline Beecham Plc.
Shell Transport & Trading Co
Travelers Group
BellSouth Corporation
AT&T Broadband & Internet
Wyeth
Ameritech Corporation
Aventis SA
AirTouch Communications
Pharmacia Corporation
Endesa SA
Bank One Corp
Gillette
Anheuser-Busch
76
75
73
73
72
68
63
60
60
60
60
59
57
52
2008
Bank of America
Merrill Lynch
50
2007
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
5
Alliances & Joint Ventures: Management
Issues
• Benefits
o
o
o
o
Combining resources and capabilities of different companies
Learning from one another
Reducing time-to-market for innovations
Risk sharing
• Problems
o
Management differences between the two partners. Conflict
most likely where the partners are also competitors
• Benefits are seldom shared equally. Distribution of
benefits determined by:
o
o
o
Strategic intent of the partners- which partner has the clearer
vision of the purpose of the alliance?
Appropriability of the contribution-- which partner’s resources
and capabilities can more easily be captured by the other?
Absorptive capacity of the company-- which partner is the
more receptive learner?
© 2013 Robert M. Grant
www.contemporarystrategyanalysis.com
6