ALL companies at this stage must formulate strategies that create a sustainable competitive advantage -M&As have to be aligned with generic and grand strategies of the company -Consider the intentions to merge in the light of vision, mission, values and existing strategies ( compatible )-Many transactions fail due to poor strategising Stage 2: Organising M&As-Need adequate capabilities and resources to facilitate integration/restructuring (time, money, expertise)-Create a separate department NB if a firm is acquisition active(constantly on the lookout for targets)-Department provides strategic direction and practical advice to all stakeholders involved in M&A process-Lack of proper planning and time management often leads to failureStage 3: Structuring the Deal-This stage consists of the following steps:Valuing the target company– very complex process that should incorporate the stand alone value as well as the value created through synergies and potential changes in control.Choosing advisors– gain the necessary expertise to avoid expensive mistakesObtaining & Evaluating as much information as possible– gather as much information on the target as possible both from the target itself as well as other sources.2 | P a g e
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Performing a due diligence investigation – very important, must consider off the balance sheet transactions tooDetermining the range of negotiation parameters – formulate the way in which the deal must be structured as well as the walk-away price.Negotiating warrantees and indemnities Negotiating positions of senior management – must try accommodate senior managers of all participating companies as far as possible Developing appropriate bid and defense mechanisms –NB to set these within the parameters set by regulatory authorities -the largest cause of failure at this stage – erroneous evaluation-very often companies pay more for the target due to winners curse– the case when there is more than one company bidding, becomes a competition -may be too optimistic about the future, or driven by personal gain instead of company’s benefit -managers must act in the best interests of the shareholders-when pay more for company than it’s worth – wealth is transferred from acquiring company’s shareholders to target company’s shareholders Stage 4: Integrating the entities-Once deal has been concluded and permission has been obtained from Competition Commission the new entity has been created.-Policies and procedures must be aligned, employees must be redeployed/retrenched and information systems must be synchronised-Major obstacle is combining corporate culture and inability of employees to accommodate co-existence-NB to consider employee morale – adjust employee incentives to align their objectives with those of the newentity-Must reflect the effect of transaction in the financial statements Stage 5: Post Integration Analysis -
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