Ceo takes the responsibility for the success of

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- CEO takes the responsibility for the success of failure ultimately. - Therefore it is important that M&A activities should be aligned with chosen generic strategy Strategic Motives & Determinants of M&A’s - Most common strategic motives for engaging in an M&A transactions are: Achieve growth Experience operating and financial synergies Diversify operations Benefit from horizontal and vertical integration Improve the company’s R&D and technological capabilities Reduce the cost of new product development Increase the “speed of market” of a product/service Gain access to more effective distribution channels - M&A’s can also be taken on as a result of managerial hubris – where managers want to build their empire - Can either be to entrench their positions and increase compensation, or they believe that can make a success out of a struggling company. 1 - Seeking Growth - Combination of existing companies can lead to high growth in new or existing markets - Many be several barriers to entry: May be controlled by a large competitor - difficult to break loyalty to them May have cultural differences when entering a foreign country - If there are barriers to entry – merge with a company that already has access & presence in the market - Cross-Border M&A’s - viable option when wanting to enter international markets - this is the fastest way, and more control than joint ventures or strategic alliances - make up approx. 40% of acquisitions made annually - Three Cross-Border M&A trends have formed: 1.) Increase in this activity from the European community 2.) Many European markets have reached their limit in domestics market & now looking to emerging markets 3.) Many European & American companies are engaging in transactions with Asia and vice versa. - There are also many challenges involved. 2 – Benefiting from operating and financial synergies - Synergy refers to the additional value that can potentially be generated by combining two or more entities. - Called the “2+2=5” effect - the output is greater than the sum of the inputs. 5 | P a g e
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- Most widely used rationale for business combinations - Operating Synergies : the synergies that allow firms to increase their operating income, growth or both and mainly originates from economies of scale and economies of scope . Economies of Scale: the average cost per unit of producing goods and services decreases as the production level increases. (“spreading the overheads”) *more effective in manufacturing companies. Economies of Scope: the ability of a company to utilise previous experience with existing products to produce additional products at a lower cost. Operating synergies also result from: greater pricing power due to lower competition levels or a greater market share Combinations of different functional strengths (marketing and product line) Operating synergies affect the profit margins and allows for further growth - Financial Synergies: the integration of a company with excess cash and limited project opportunities and a company with limited cash and excess project opportunities.
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