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Mergers & Acquisitions: Strategic Alliances

Mergers & Acquisitions: Strategic Alliances. Prof. Ian Giddy New York University. Mergers and Acquisitions: Summary. Mergers & Acquisitions Divestitures Strategic Alliances. Strategic Alliances: An Alternative to Acquisition.

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Mergers & Acquisitions: Strategic Alliances

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  1. Mergers & Acquisitions:Strategic Alliances Prof. Ian Giddy New York University

  2. Mergers and Acquisitions: Summary • Mergers & Acquisitions • Divestitures • Strategic Alliances

  3. Strategic Alliances:An Alternative to Acquisition • "A strategic alliance is a collaborative agreement between two or more companies, which contribute resources to a common endeavor of potentially important competitive consequences, while maintaining their individuality." • Example with internal emphasis: Sunkyong with GTE, Vodaphone & Hutchinson Whampoa for cellular system • Example with external emphasis: Santander with Royal Bank of Scotland for European market in financial services • Driving forces: • Complementary resources - gain strategic resources • Similar capabilities - gain economies or market power

  4. A List Of Alliance Options

  5. Forms of Strategic Alliance • Many linkages are options for future development of relationships ACQUISITION MERGER WITH FULL INTEGRATION POTENTIAL FOR CONTROL JOINT VENTURE JOINT PROJECTS SPECIFIC DISTRIBUTION OR SUPPLY AGREEMENT INFORMAL ALLIANCE IRREVERSIBILITY OF COMMITMENT

  6. Pitfalls and Problems • Linkage may not offer access to partner's resources (JP Morgan-Espirito Santo) • Disagreement on contribution (Euroclear-Cedel) • Partners competing in one another's market (Credit Lyonnias-Commerzbank) • Linkage may exclude other options for expansion into a product or market • Clash of cultures; cross-purpose marketing (Credit Suisse-First Boston) Key predictor of stability is asset specificity and irreversibility of commitment.

  7. Success Rates For Cross-Border Mergers And Acquisitions

  8. Success Rates For Cross-Border Alliances

  9. Geographic Overlap Helps Mergers And Acquisitions... 6 Failure for acquirer 92 94 Success for 8 acquirer Minimal Moderate or geographic high geographic overlap (sample overlap (sample of 12) of 16)

  10. ...But It Hinders Alliances

  11. Questions to Ask Before the Alliance • Identify value creation logic to both firms. Are the logics similar? Are they compatible? • What is the potential value of the alliance to each firm (versus the cost of not having the alliance?) • What are the specific financial and competitive risks to each partner? • What is the value of complementary assets? Of common assets contributed? • Evaluate the investment each partner would make. • Evaluate other resource commitments. • What are the scope and boundaries of the alliance? • What commitments are made in the alliance? • What are the criteria for success? Are they shared? • What revenues and returns are projected? What risks? • What are the critical limiting factors? • Is there an action plan to reduce the limiting factors?

  12. Summary • Strategic alliances can be a good alternative to M&A, offering an option for future M&A • To make them work, need: • Partners focused on core competencies and core businesses • Complementary co-specialized assets creating new business opportunities • No threat of encroachment on either partner's part

  13. www.stern.nyu.edu

  14. www.giddy.org

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