All companies at this stage must formulate strategies

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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 failure Stage 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 mistakes Obtaining & 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 too Determining 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 new entity - Must reflect the effect of transaction in the financial statements Stage 5: Post Integration Analysis -
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  • Fall '19
  • takeover, Target Company

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