BSCI371

Mergers, Acquisitions & Alliances

SU E5

April 2024
 Today’s lecture

Content

 Mergers & Acquisitions, types and processes

 Strategic alliances, types and processes
 Learning outcomes
E5 Mergers, Acquisitions and Alliances
On completion of this study unit you should be able to:
 Discuss and apply selected aspects relating to Mergers, Acquisitions and
Alliances.

 Discuss and apply the motives and processes relating to Mergers,

Acquisitions and Alliances.

 Discuss the different types and nature of mergers, acquisitions and strategic
alliances.

 Analyse, contrast and evaluate between mergers, acquisitions and strategic

alliances as business growth strategies.
 Study material
Correia. Financial Management (9th edition)
Chapter 17 (Par 1 only)

Whittington. Exploring Strategy (12th edition)

Chapter 11 (Par 11.1, 11.3 & 11.4)

For purposes of this study unit, figure 11.3 (page 345), the five integration
approaches and par 11.3.5 is excluded and may be ignored.

Par 11.5 is also excluded but have been included

in the chapter handout for information purposes
 Types of Mergers

(Correia par 1)

Horizontal mergers– 2 firms in the same industry amalgamate, eg

Shoprite & Checkers

Vertical mergers – A firm expands either forward (merges with

customer), or backwards (merges with a supplier).

Conglomerate mergers – Firms in unrelated lines of business merge.

 Mergers & Acquisitions
(Whittington par 11.3.1)
Growth strategies defined as follows;

Merger- a combination of 2 previously separate organizations (often of similar

size) to form a new company, generally with equal status.

Acquisition – An acquirer takes control of another company through

purchasing the majority shares in the target company. Maybe friendly or
hostile. Generally, acquirers are larger than the target company.

M & A are partly regulated by the Companies Act 71 of 2008.

 Mergers & Acquisitions motives
(Whittington par 11.3.3)

Strategy Category Example

Extension Market Penetration. Market Development (increase market share)
Strategic Motives Consolidation Horizontal Intergration (Improve competitive advantage)
Resources & capabilities Improved resouces, skills, Technology, R & D
Financial Efficiency Highly indebted company is acquired & accesses funds
Financial Motives Tax Efficiency Access to tax advantages, eg transferability of tax losses
Asset Unbundling Stripping or unbundling underlying assets of target company
Personal Ambition Managers'personal profile enhancements
Managerial Motives Bandwagon Effects Pressure on managers to join the acquisition bandwagon
 Mergers & Acquisitions processes
(Whittington par 11.3.4)

Target choice

There are 2 main criteria to apply;

Strategic fit – Does target firm strengthens and compliment acquiring firm’s strategy,
objectives, synergy, etc.

Organisational fit – Is there a match between the 2 firms with regards to management
practices, cultural practices, staff characteristics. Mismatches may cause integration problems.
 Mergers & Acquisitions processes
(Whittington par 11.3.4)
Negotiation in M&A
 Negotiation process is critical

 Agreement is key

 Offer too little … no deal

 Offer too much … likely to make a loss on the acquisition

 Mergers & Acquisitions processes

Integration in M&A (Whittington par 11.3.4)

 Value extractions on the acquisition depends on integration

 Challenges
 Culture
 Systems

 Most suitable approach depends on two criteria

 The extent of strategic interdependence
 The need for organisational autonomy
 STRATEGIC ALLIANCES
Whittington Par 11.4

 Where 2 or more organisations share resources and activities to

pursue a common strategy.

 To gain market share, competitive advantage, pool resources or

establish economies of scale.

 Eg, the strategic alliance between Spotify and Uber allows Uber
users to connect to Spotify and stream their favourite music while
on ride.

 Heineken entered into a strategic alliance with SA Breweries that

they licences SAB to manufacture and market their products, such
as Amstel Lager because it was expensive and time consuming for
Heineken to create their marketing channel.
 Types of Strategic Alliances
Whittington Par 11.4.1

 Equity Alliance – eg, 2 partners form a joint venture with 50/50%

ownership.

 IBM, Hewlett-Packard, Toshiba & Samsung jointly formed a

research consortium - Sematech to research on the latest
technologies.

 Non-Equity Alliances – often based on contract without the

commitment implied by ownership.

 Eg, Franchising, where the franchisor gives the franchisee the

right to sell the franchisor’s products / services in a particular
location in return for a fee or royalty.
Strategic Alliances Motives
Whittington Par 11.4.2
 Strategic Alliances Motives
Whittington Par 11.4.2

Scale Alliances – Combine to achieve necessary scale. A & B are similar, but
together they achieve what they could not manage on their own, like economies of
scale, and sharing risks.

Access Alliances – To access required capabilities of another organisation. B

is critical to A’s ability to, for example, sell its products.

Complementary Alliances – Organisations combine their distinctive

resources to bolster each partner’s particular gaps or weaknesses. A’s strengths
match with B’s weaknesses, and vice versa. Eg Nissan-Renault Alliance.

Collusive Alliances – Organisations collude together into cartels for market

power or reduced competition. May be illegal, hence no formal agreements between
A & B.
Strategic Alliances Processes
Whittington Par 11.4.3
 Strategic Alliances Processes
Whittington Par 11.4.3

In alliances, neither party is in control, therefore the importance of 2

principles;

Co-evolution- Realignment & flexibility, as, partners, strategies, capabilities and

environments constantly change.

Trust – Reliability & integrity.

The strategic Alliance Evolution

Courtship – Willingness of each partner is required. Each partner to consider
their strategic fit and organisational fit.

Negotiations – Negotiate mutual roles, proportions of ownership, profit sharing,

managerial responsibilities, dispute resolutions, etc.
 Strategic Alliances Processes
Whittington Par 11.4.3
The strategic Alliance Evolution (continues)

Start-up – Very critical. Agreements are put to test, & adjustments may be made.

Maintenance – Maintain cooperative relations necessary for day to day working of

the alliance. Allow for changing external circumstances

Termination – Amicable when the time span has been reached, or the purpose
has been achieved. Extended when successfully completed, and new agreements,
and new terms are agreed upon. Divorce when there are disagreements.
Any questions ??