Module MC050

M&A Management


Module author

Duncan Angwin

Oxford Brookes University

Learning objectives After you have worked through this module, you should be able to understand the:
  • Scale of M&A activity globally;
  • Two main theories that explain positive conditions for M&A;
  • Importance of "industry shocks" in explaining M&A activity;
  • Main macro drivers causing industry shocks;
  • Arguments for and against merger waves, from multiple perspectives.

Chapter 1: The M&A context
1.2 The macro determinants of M&A
1.3 Industry shocks
1.3.1 Technological change
1.3.2 Deregulation
1.3.3 Globalization
1.4 Are M&A waves a good thing?

Chapter 2: M&A Strategy
2.1 Introduction
2.2 ‘Classical' strategies for M&A
2.2.2 Economics-based strategies
2.2.3 Classical strategy literature
2.2.4 Other recognized strategies
2.2.5 Under-recognized strategies
2.2.6 Non-top management reasons for M&A
2.3 A typology of M&A strategies
2.4 Multiple motivations

Chapter 3: M&A Finance and Performance
3.1 Introduction
3.2 Valuation of the target
3.2.1 Multiples methods Price to EBITDA and Price to operating cash flow Price to sales Price to a particular business attribute
3.2.2 Dividend discount model
3.2.3 Asset-based valuation
3.2.4 Cash-flow-based valuation
3.2.5 Accounting-based methods
3.2.6 Real options
3.3 M&A performance
3.3.1 How is performance measured?
3.3.2 Factors that explain variations in performance

Chapter 4: M&A Process

Chapter 5: Post-Acquisition Integration
5.1 Introduction
5.2 Post-acquisition typologies
5.2.1 Organizational autonomy
5.2.2 Strategic interdependence
5.2.3 Post-acquisition strategy typology
5.3 Implications

Workload units 2
Read Module Excerpt M&A Management


Why Open School of Management believes that competences in mergers and acquisitions management are important

Mergers and acquisitions (M&A) are a part of strategic management. This area of management addresses the buying and selling of enterprises, in addition to combining and dividing, without creating an entirely new venture. Usually, the process of buying, selling, combining, dividing, or restructuring is implemented with the intent of increasing positive growth or value. Widespread M&A activity will, typically, concentrate the resources of small companies into one.

The distinction between a merger and an acquisition is not as clear as it once was in the past. In general, a merger is considered the legal consolidation of two companies into one. An acquisition is the complete takeover of a company by another one. The target company will still remain an independent legal entity although is may be controlled by an acquirer. Economic and financial consolidation of the two entities is evident in this situation. Both CEOs may agree to combine the companies if it's in the best interest of the companies.


Why study M&A Management?

Mergers and acquisitions are relevant in today's society because poor economic conditions have led many companies to fail to meet their economic responsibilities. Often, combining resources will lead to a better organization and products when organizations cannot handle it alone. If one company perceives that a company could be an asset to their existing product or service line, they may consider a merger or acquisition also. The reasons that someone might consider a merger or acquisition are numerous. Here are some of the other reasons:

  1. Economy of Scale - A combined company can reduce fixed costs by consolidating and eliminating duplicate departments or operations. This will lower costs and increase profit margins.
  2. Economy of Scope - When there is an increase or decrease in the scope of marketing and distribution of products, a merger or acquisition may be necessary.
  3. Increased Revenue or Market Share - The buyer may purchase a major competitor to increase its market power.
  4. Cross-Selling - One company could buy another company with complementary products and cross-sell them. For instance, a shoe company could sell socks to a customer buying shoes or a technology company may sell semiconductors to a company who is buying devices for another design or who is buying consumer products.
  5. Synergy - One company's products may increase the likelihood that another company's products will thrive. For instance, increased order size may lead to purchasing economies.
  6. Taxation - A profitable company can buy a losing company to reduce their tax liability.
  7. Resource Transfer - When resources are distributed unevenly across firms, it may be best to merge or acquire a company to level the playing field. This can create more value for both companies.
  8. Vertical Integration - Vertical integration occurs when an external problem needs to be addressed internally. Double marginalization is one example of this. If both firms have monopoly power, but the presence of each company reduces output, they can merge to prevent loss.
  9. Hiring - Some companies will acquire other companies rather than hire new staff. Small companies in start-up phase are often in danger of being acquired.
  10. Diversification - Diversifying a portfolio with an acquisition is one of the ways that organizations can increase profitability.

Some mergers and acquisitions are friendly, and some are hostile. It will depend upon whether or not the party that poses the takeover has a reasonable argument that appeals to the company that will be acquired. Most of the feelings about a merger or acquisition are based on perceptions. The perceptions of the company's board of directors, shareholders, or employees will shape the way the merger or acquisition is perceived.

Most hostile takeovers, eventually, become friendly, but the length of time may differ based upon the sentiment of the employees, stakeholders, board of directors, and executives. In friendly acquisitions, companies will cooperate in negotiations and confidentiality agreements may be signed.

There are numerous mergers and acquisitions occurring after the economic crash because companies wanted to save the products and services they provide to customers. Competition also increased for the limited resources available. This is why many companies were bought because they were unable to meet the demand.

Business owners should be aware of the merger and acquisition process should they be faced with acquisition or be approached with a merger. While acquisitions are common, it is not uncommon that 50 percent of them fail. Thus, clients must be aware of what they are committing to prior to taking the merger or acquisition leap. This is why M&A management is so important to a company's successful merger or acquisition.


Module overview

This module is designed to prepare you for merger and acquisition management. First, you must understand the M&A context. This means: macro determinants of M&A, industry shocks, technological change, deregulation, globalization, and M&A waves. Mastering these sub-chapters will give you the foundation you need to build a greater understanding of the process.

The second phase is to learn about M&A strategy. The sub-chapters you may encounter include classical strategies for M&A, economics-based strategies, classical strategy literature, non-top management reasons for M&A, multiple motivations, and a typology of M&A strategies. The second phase builds upon the first phase and provides a more solid understanding of what motivates a company to an acquisition or merger and what some of the economic-based strategies might be.

The third phase involves M&A finance and performance. In this phase, students will learn that there are multiple methods of mergers and acquisitions. They will also be exposed to the dividend discount model, asset-based valuation, cash-flow-based valuation, and accounting-based methods. In addition, price to EBITDA, price to sales, price to a particular business attribute, and price to operating cash flow will be addressed. Learning how performance is measured and how to explain the variations in performance can help.

The fourth phase involves learning about the M&A process. It's an intensive phase, but it's necessary to help potential M&A managers understand the proper way to conduct business during a merger or acquisition.

The fifth and final phase is the post-acquisition integration. Part of this phase requires everyone adapting to the new structure and learning to accept the state of the organization. Students learn about post-acquisition typologies, organizational autonomy, strategic interdependence, implications, and post-acquisition strategy typology.


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