Acquisitions can be categorized either based on the levels of economic activity involved
according to Horizontal merger -similar business activity (e.g. SIERRATEL),Vertical
merger different levels in the supply chain in the same industry, and Conglomerate -
non-related business activity.The sole motivation for initiating a merger or acquisition should be increased wealth for
the acquirer’s shareholders. Merger &Acquisition (M&A) decisions create value, which
comes only from two sources these are more cash flow or less risk.The total synergy is just the present value of all future incremental cash flows created
by the acquisition. Some acquisitions (Like SIERRATEL) provide strategic benefits
(economics of scale, vertical integration, complementary resources and the elimination
of inefficient management) that act as insurance against or options on future changes
in the competitive environment. More revenue (incremental revenues, cost reductions,
tax savings), increase market share and allow the merged firm to charge higher prices.Issues to consider in developing and executing a successful M&A strategy
- Identify and analyze target industry or market segment
- Appropriate combination of Cash VS stock deals, Purchase VS Pool accounting-
Goodwill - Validate business purpose on Tax issues
- Antitrust concerns during acquisition screening and ranking process
- Identify and quantify impact of cross boarder deals on synergies and the
implementation timetable - Critical analysis of Cultural impact at corporate/industry; or natural levels
In an unfriendly takeover attempt (boards’ interest differ from those of management),
the directors of the target company must rely on legal advice, since takeovers inevitably
lead to lawsuits. The board also depends on expert advice from investment banks about
the value of the company and the true value of offers to acquire it.Most acquisitions fail to meet the expectations of corporate managers and shareholders
because of ill-conceived acquisition strategies, poor target selection, overpayment, and
failed implementation.