acquisition-restructuring-joosik-matt

acquisition-restructuring-joosik-matt - Acquisition and R...

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6/7/11 Click to edit Master subtitle style Acquisition and Restr uctur ing Joosik Kim and Matt Mullen
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6/7/11 Relative Adv. of Two Entr y mode Acquisition Internal Development Cost of Entry Pay acquisition premium, transaction cost, integration costs High for firms with Risk of Entry Higher Lower Speed of Entry Quick Slow
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6/7/11 cont. Cost of Entry Acquisition Require payments of a significant financial premium and further transaction costs The margin may in effect be reduced: if the stock price of the acquiring firm is high Funded by exchanging of stock, accumulated cash reserves, debt Internal Development Relatively low cost Unless firm has weaker base in R & D
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6/7/11 cont. Risk of Entry Acquisition Lump-sum commitment through a single transaction: possibility to lead high losses Often fail to create the value and interrupt acquiring firm’s innovative capabilities Information asymmetries b/w the acquiring firm and candidates: overpaying Internal Development Incremental investments are spread across multiple transaction
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6/7/11 cont. Speed of Entry Acquisition Relatively quick Allow to realize revenue earlier, achieve scope economies faster and capture a greater market share Internal Development Normally takes many months or years Required to fine-tune the business to achieve the profitability
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6/7/11 Acquisition histor y 1980s- 55,000 merger and acquisition transactions for $1.3 Trillion 1990s- Produced more than twice that number Becoming CEOs’ favorite growth strategy 70% of merger acquisition activity fails to improve firm’s performance
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6/7/11 Failures Illusory synergies Managerial hubris Sluggish integrations of the firms Especially large firms there is great complexity in integrating operating, accounting systems along with cultures
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6/7/11 Firms engaged in multiple acquisitions over time are likely to introduce fewer new products to the market. This is a problem with an ever changing dynamic environment that exists in today’s market. Hubris and weak governance Found that larger premiums were paid when corporate governance was weak
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6/7/11 Financing Acquisitions Cash, Stock, Debt? Which is the best method? Cash has been the most favored and was often times more successful. When management of the bidding firm believes that its own stock is overvalued, securities are the preferred form of payment. The most important reason for the popularity of cash deals is that they provide more attractive immediate
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6/7/11 Financing Cont. Importance of debt
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This note was uploaded on 06/07/2011 for the course BMGT 892 taught by Professor Donsmith during the Spring '11 term at UNL.

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acquisition-restructuring-joosik-matt - Acquisition and R...

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