GROWTH THROUGH MERGERS &

ACQUISITIONS
INTRODUCTION

• Inorganic tools of growth for an organization

• Most sought after tool because of the speed at which growth can be achieved
• However most cases fail
• Has to be dealt more carefully
KEY CONCEPTS
MERGERS & ACQUISITIONS

• Merger – Two organizations relatively equal size come together for form a single new organization
• Owners of both pre merged organizations become the owners here

• Pre merged organizations cease to exist

• If the organizations are competitors, it’s called horizontal merger which will lead to greater market
share
• Have to be careful about anti monopoly laws

• Vertical merger – Organizations with seller buyer relationships merge

• Third type – Conglomerate merger
ACQUISITIONS

• One organization being taken over by another

• Organization that is taken over  Target. Target organization ceases to exit.
• Equity shares will be given using an exchange ratio
• Friendly Acquisitions  Happens with the consent of the target’s board
• Hostile Acquisition  Done by purchasing equity shares of the target
• Acquisitions are done mainly to get access to complementary skills and resources
• Hostile acquisitions may not satisfy that purpose
FRIENDLY ACQUISITION – THE MANTRA

• Gate 1 – Keeping the Radar Vigilant

• Always keep an eye on possibilities of acquisition opportunities
• But make sure the opportunity has enough value in it for the acquirer

• Gate 2 – Getting priorities straight

• Both the target and acquirer should be very clear about the reason for acquisition
• Negotiations at every stage should be based on this
• The essential attributes of the deal should be charted very carefully
• The role and fate of the target’s top management should be clearly stated
• Gate 3 – Pre-negotiation
• Acquirer conducts a thorough check of the target’s standing
• Acquirer gets nuances of the target’s internal functioning
• Also known as step of due diligence
• Gate 4 – Striking the deal
• Differences of opinions between the parties are ironed out
• Granular details of the deal worked out
• Multiple teams along the functional lines should work on the deal
• Acquirer should also focus on alternative targets in this stage as it increases the bargaining power
• Also have an eye on possible competition for acquiring the chosen target
• Case 5 – Deal Closure and Integration
• Acquirer has to convince all the stakeholders about the merits and demerits of the deal
• Also it needs to ensure that the acquired organization is well integrated

• Modes of payment
• Cash
• Stock

Case – PepsiCo- Quaker acquisition and HQ- Compaq Merger