Mergers and Acquisitions - Crib Sheet

Strategic Vs. Financial merger

Strategic transaction undertaken to achieve economies of scale

Financial transaction undertaken with the goal of restructuring the acquired com-
pany to improve its cash flow and unlock its hidden value.

Types of merges from an economic standpoint

Horizontal 2 competitors
• Horizontal mergers involve firms that operate & compete in the same
kind of business activity
• Economic Rationale: Possible economies of scale, enhanced market
power

Vertical A customer and a supplier

• Vertical mergers occur between firms in different stages of produc-
tion operation
• Economic Rationale: Possible technological economies, economies
on transaction/contracting costs, improved efficiency through better
control of the supply chain

Congeneric is a merger in which one firm acquires another firm that is in the same
general industry but neither in the same line of business nor a supplier or
a customer

Concentric or broaden the product lines of firms in related business activities

Product extension

Geographic involve firms whose operations have been conducted in non-overlapping

market extension geographic areas

Pure conglomerate involve firms which operate in unrelated business activities

Why conglomerate mergers?
Financial serving as internal capital markets (diversification, avoiance of gambler’s
conglomerates ruin, management discipline) and structuring forces for financial plan-
ning and control (insistence on financial planning and control programs,
adequate rewards for good managers in difficult industries.)

Managerial the idea is that general management skills are transferable. Conglomer-
conglomerates ates have excess management talent on their payrolls and allocate it to
firms which were poorly managed.Same idea with concentric company
with specialised functional expertise.

Completementary or supplementary deals

Complementary acquisition is one that helps to compensate for some weakness of the
acquiring firm (manufacturing vs. marketing, geographies… E.g. Kraft
and Cadbury)

Supplementary acquisition is one in which the target reinforces an existing strength of

the acquiring firm. (Most are horizontal. E.g. Sprint and Nextel)