Evolution in Mergers/Acquisitions and
Strategic Alliances in High-Technology
Sectors:
From Alliances to Mergers
“Seminaire de Recherche en Gestion” (ULG)
Liège, 3rd May 2005
Sara Villanueva-Alcántara
ULG – HEC-Liège, 3rd May 2005
Sara Villanueva-Alcántara
OUTLINE
• Introduction & Data Sources
• SA / M&A:
– Definitions
– Motives
– Forms
• Competition in the Semiconductor Sector
• Patterns in SA /M&A in the Sector
• Comparison of SA / M&A’s trends
• Conclusions
ULG –26
HEC-Liège,
VISION
October 20003rd May 2005
Sara Villanueva
Alcántara
Sara Villanueva
Alcántara
Introduction
“ Firms perceive the environment and try to shape their
endowments in their search for knowledge ”
Strategic alliances, mergers and acquisitions are seen as a
portfolio of strategic agreements in which firms engage in
order to become or remain competitive.
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Introduction
DRAMATIC INCREASE IN SA & M&Ac in last decades
SA & M&Acs are seen in the literature as main vehicles for
technology transfer between companies
Motivations for SA & M&Acs formation have changed during
the past century
M&Acs increasingly used to absorb complementary
technological capabilities
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General Trends
Number of Total Transactions (SA & M-Acs)
45000
40000
# of transactions
35000
30000
25000
20000
15000
10000
5000
0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Source: Thomson Financial
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General Trends
M&Acs Value in US $
5.000.000
value US$
4.000.000
3.000.000
2.000.000
1.000.000
0
85 986 987 988 989 990 991 992 993 994 995 996 997 998 999 000
9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2
Year
Source: Thomson Financial
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Data
SDC Thomson Financial Data Base:
• 1835 M&A events (Semiconductor Sector: 1985-2000)
• 1933 SA events (Semiconductor Sector: 1985-2000)
OSIRIS Company Data Base:
• 900 companies that were involved in M&A and/or SA
(1985-2000)
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Definitions I
Definitions:
Strategic Alliance (SA): Increase Value
• Competitive Collaboration (Hamel et al, 1989)
• From minority equity holding to distribution agreements (Mitchell &
Singh, 1992)
• Arrangmts. to exchange, share or co-developing products (Gulati, 98)
• Co-operative arrangements involving Cross border flows (Parkhe, 93)
• Any governance structure involving incomplete contract between
separate firms (Gomes Casseres, 1996)
• Pooling of firms’ resources to achieve common goals (Hellriegel, 1996)
• Voluntary cooperative agreements aimed at achieving competitive
advantage (Das et al, 2000)
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Definitions II
Definitions:
Strategic Alliance (SA): Increase Value
• Voluntary arrangements to jointly achieve individual goals
• Joint Ventures (JV)
• Collaborative Arrangements that do not create new entity
• Cross-border & Domestic collaborations
SA are voluntary cooperative inter-firm agreements aimed at achieving a
competitive advantage for the partners
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Definitions III
Definitions:
Mergers & Acquisitions (MA): Increase Value
• Tool for exploiting capabilities rather than learning (Yamin, 1996)
• General expression of control transfer (Ross, 1996)
• Combining two companies into a new one (Weston et al, 1997)
MA contribute to the corporate renewal process
MA aim at increasing the value of the combined companies
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Motives I
Motives:
Strategic Alliance (SA):
• Learning (Daniels, 98; Lei& Slocum, 92; Kogut, 88; Nelson and Winter, 82; Doz, 98;
Eisenhardt & Schoonhoven, 96; Hagedoorn, 93)
• Lowering costs (Hellriegel, 1996)
• Sharing Risks by joint research and exploration (Eisendhardt et al, 96)
• Creating unique combination of resources (Contractor and Lorange,
1988)
• Geographical strateg. to enter new markets (Hagedoorn, 1993; Doz, 1998)
• Erode Competition (Kogut, 1988)
• Access new product market (Daniels, 1998)
• Strategic positioning to lead an industry (Doz, 1998)
• Legitimation (Eisenhardt & Schoonhoven, 96)
• Isomorphism (Gulati, 95)
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Motives II
Motives:
Merger & Acquisition (MA):
• Learning (Ashkenas et al, 1998)
• Value Capture (Haspeslagh & Jemison, 1991)
• Value Creation (Haspeslagh & Jemison, 91; Trautwein, 90; Weston et al, 98)
• Diversification (Weston et al, 1998)
• Managerial (Weston et al, 98; Mueller, 95)
• Increase Market Power (Weston et al, 98)
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Forms I
Forms:
Strategic Alliance (SA):
Equity Agreements, (Gulati, 98; Hagedoorn & Narula, 99; Das et al, 00, Tamin, 96;
Hellriegel, 96)
High Degree of Dependency  Creation of New Entity
Joint Ventures
Non-equity Agreements (Duysters & Hagedoorn, 00; Hagedoorn & Narula, 99
& 94; Mowery et al, 96)
Flexibility is Needed  Low Level of Integration
Licensing, Cross-licensing, Joint research = SA
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Forms II
Forms:
Mergers & Acquisitions (MA):
Related MA, (Hitt et al, 1998; Lubatkin, 1987; Montgomery & Wilson, 1986; Singh &
Montgomery, 1987; Hagedoorn & Duysters, 2002)
e.g: After Buy-Seller Relation
(Hagedoorn 2000)
Vertical Integration (Weston, 1997; Ross, 1996; Brealy, 1996)
Unrelated MA (Duysters & Hagedoorn, 2000; Hagedoorn & Narula, 1999 & 1994;
Mowery et al, 1996)
Firms Non Related in terms of Product-Market (creation of largely
diversified companies)
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Semiconductor Sector I
Reasons for choosing the semiconductor:
Tension
Change
Stability
Technological Change
Change in products
Stability of manufacturing equipments
Technological Change in Design and Products: Economies of Scope
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Semiconductor Sector II
Semiconductor Sector Cycles:
• Peculiarity of the Sector: Price declines joined by parallel increase of chip’s performance
•
Reason: Excess demand and supply cycles of the sector
Time span between R&D to market of the final chip creates excess demand and supply cycles
Fierce Competition reflected in high R&D expenditures
High R&D => Fast Obsolescence of Existing products
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Competition
Competition in the Industry I:
•
MAINLY:
– Price declines,
– intense R&D expenditure and
– reduction of lead times
• Manufacturing:
– Complexity: High fix costs
– Economies of Scope: in order to reduce costs
– “Learning curve”pricing strategy: Results of a process of cumulative learning
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Competition
Competition in the Industry II:
• Design & Process:
– Due to Economies of Scope => division of manufacturing and design
– Manufacturing = Foundry (exposed to investment cycle of sector but can spread risks)
– Design: Fabless (heavy investments in R&D)
• Role of Small & Large Firms:
–
–
–
–
–
–
–
Initially large firms are at the heart of the industry (e.g. Bell Labs)
Those large firms enjoyed Government support (largest semicond demand was public)
Small firms entered when government demand weakened.
Fast movers responding to technology change. INNOVATIVE
Have got no burden on former existing technologies
Maintain the competitive tension in the sector
BUT…Small firms face difficulties due to:
+Lack financial resources
+Narrow networks…
SMALL Firms SHOULD:
– In order to maintain position: keep up with technology path and innovate
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SA Patterns
“Strategic Alliances are voluntary cooperative inter-firm agreements
aimed at achieving a competitive advantage for the partners”
MODES
MOTIVE
Spread and Reduce Costs
R&D projects / Manufacturing set ups
Specialize
Unrelated Industries or Technologies
Avoid Competition
Cross-Border SA / Standard Settings
Secure Vertical and Horizontal Linkages
Equity Agreements (avoid opportunism)
FORMS
Equity (JV) / Non-Equity (Joint Agreements)
Related / Unrelated Industries
R&D Agreements
Manufacturing Agreem.
Cross-Border Agreem.
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SA: Equity Agreements
Equity Agreements in Semiconductors
Weigth of Equity Agreements as % of Total partnerships
100%
90%
80%
70%
%
60%
Total JV agreements as % of
Total partnerships
50%
40%
30%
20%
10%
0%
YEAR 1985 1986 1987 1988 1989 1990 1991
1992 1993 1994 1995 1996 1997 1998 1999
Year
Source: Thomson Financial
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SA: Related vs. Unrelated
Unrelated Industry Agreements
Related Industry SA Vs. Unrelated
100%
90%
80%
70%
%
60%
50%
Unrelated Ind. SA % of Total
40%
30%
20%
10%
0%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
YEAR
Source: Thomson Financial
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SA: R&D Agreements
R&D Agreements
Tot R&D % Tot SA
100%
90%
80%
70%
%
60%
50%
Tot R&D % Tot SA
40%
30%
20%
10%
0%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
YEAR
Source: Thomson Financial
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SA: Manufacturing Agreem.
Manufacturing
Tot Manufacturing as % Tot SA
100%
90%
80%
70%
%
60%
50%
Tot Manufacturing as % Tot SA
40%
30%
20%
10%
0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
YEAR
Source: Thomson Financial
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SA: Cross-Border
Cross-Border Agreements
SA Dataset: Cross-Border Vs. Domestic Agreements
100%
90%
80%
70%
60%
50%
Tot Cross Border % of Total SA
40%
30%
20%
10%
0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: Thomson Financial
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YEAR
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MA Patterns
“Mergers and Acquisitions aim at increasing the value of the combined
companies”
Semiconductor MAcs:
MOTIVE
Capturing Value
FORMS
Related / Unrelated Industries
Create Value (synergy)
Diversification
Cross-Border Agreem.
Market Power (in combination)
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MA: Related vs. Unrelated
Unrelated Industries M&Acs
Source: Thomson Financial
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MA: Cross-Border
Cross-Border M&Acs
Source: Thomson Financial
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Semiconductor SA - MAs
High R&D costs
Capital Intensive Sector
Expensive equipment & scientific training
Short Product Life
Dangers = Obsolescence Vs. Overcapacity
Sector not concentrated Worldwide
Economies of Scope
Accumulation of Knowledge is imperative
SA and M&Acs are a mean to acquire critical knowledge &
resources
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Comparison SA/MA in Sector
Semiconductor’s SA-MACs trends
Comparison Total Number M&A and SA - Semiconductor Sector
450
400
350
Counts
300
250
Total Numb
Agreem
Tot num MA
200
SUM MA-SA
150
100
50
0
1985
1986
1987
1988
1989
Source: Thomson Financial
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1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
YEAR
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CONCLUSIONS
SA & M&Acs are seen as critical in the evolution of the sector
during the last two decades. The trends have evolved together
with the sector’s history
Motivation for SA & M&Acs formation in the sector has also
changed together with the globalization of the economy and its
cycles
Further Research: Study of possible links between SA
partners becoming MAcs fellows based on evidence shown.
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