compare & contrast among merger, acquisition, joint venture & strategic alliances

Points to be compare & contrast Definition

Types

Mergers

Acquisitions

In a merger, two companies become one, and one of the companies often survives while the other disappears.

Takeovers or Acquisitions happen when one company acquires ownership or the controlling stake in the other company. Companies looking for rapid growth opportunities often adopt the takeover strategy.

Types of Mergers:

Types of acquisitions:

Horizontal Mergers, Vertical Mergers, & Conglomerate Mergers.

Friendly acquisition,

Joint Venture

Strategic Alliances

In a joint venture, two companies conspire to achieve a specific goal, such as building a third company, working on an outside project or marketing synergistic services. In a joint venture, both companies remain separate and intact. Types of Joint ventures:

In strategic alliances the companies collaborate with each other to pursue a business activity. Here new company is not formed. The companies remain independent after the formation of the alliance Types of Strategic Alliances:

co-operate with another business in a limited and specific way ,

Reverse acquisition, Back flip acquisition, & Hostile acquisition.

separate joint venture business, Business partnership or a limited liability partnership.

Equity Strategic Alliances Non equity Strategic Alliances Operation & logistics alliances Marketing, sales & service alliances Global Strategic Alliances Outsourcing Technology Licensing Product Licensing & Franchising.

1

Points to be compare & contrast Reasons to form/ Motives

Mergers

Acquisitions

Joint Venture

1 .The math of a merger is 1 .To achieve economies of scale “1+1=3” or “2+2=5”. 2. To achieve greater market share 2. Synergies through Consolidation 3. To increase synergy 3. Diversification: firms diversify to achieve:    

1. Spreading prices 2.

Opening accessibility to fiscal asset

4. To reduce cost

3. Connection to technological asset

5. Due to managerial Ego

4. Aid economies of scale

Sales and growth stability Favorable growth developments Favorable competition shifts Technological changes

5. Develop stronger innovative solution 6. Strategic move against competition 7.

Synergistic causes

4. Accelerated Growth

Nature

5. Increased Market Power

8. Share & strengthen technology & skill

6. Increased External Financial Capability

9. diversification

Can be friendly or hostile

Can be friendly or hostile

Friendly

2

Strategic Alliances

1. Reducing risk 2. Test new strategies 3. Provide access to more potential customer 4. To broaden / extend product & service offerings 5. Boost market presence 6. Speed entry into particular market 7. Reduces risk and overhead cost 8. Strengthen reputation in the industry and establish a friendly business relationship

Friendly

Points to be compare & contrast Benefits

Mergers

o

o

Economies of Scale: The main advantage of mergers is all the potential economies of scale that can arise. In a horizontal merger, this could be quite extensive, especially if there are high fixed costs in the industry. If the merger is a vertical merger or conglom erate merger, the scope for economies of scale would be lower.

Acquisitions

o

Joint Venture

Acquisition is one of the most time-efficient growth strategies. It offers the opportunity to quickly acquire resources and core competencies.

o

An acquisition will quickly build market presence for the company, increasing market share while reducing the competition’s stronghold. o

o

o

Increased productivity and greater profits.

o

Access to new geographical markets

o

Access to improved resources like experienced technicians, experienced staff, greater capacity, financial resources etc.

Immediate increases in revenues & raising capital

Mergers can help firms deal with the threat of multinationals and compete on an international scale.

3

Sharing of costs and risks with partners.

o

Diversification of business by producing new products or new area of business.

o

Diversification of Risk

o

Joint ventures can be flexible. They can have a limited life, thus limiting both parties’

Strategic Alliances

o

Gaining capabilities

o

Sharing the financial risk,

o

Winning the political obstacle,

o

Achieving synergy and competitive advantage

o

Allowing each partner to concentrate on their competitive advantage.

Points to be compare & contrast

Disadvant ages

Mergers

o

Mergers may allow greater investment in Research & development.

o

Greater Efficiency

o

Protect an industry from closing.

o

Higher Prices: A merger can reduce competition and give the new firm monopoly power. With less competition and greater market share, the new firm can usually increase prices for consumers.

o

Less Choice: A merger can lead to less choice for consumers

Acquisitions

Joint Venture

Strategic Alliances

commitment and the business' exposure.

o

o

o

Integration problems: The activities of new and old organizations may be difficult to integrate. Cultural fit can be problematic. Employees may resist it. Increased Administrative Burden. In an acquisition, the company will have employees at both firms performing similar jobs after the purchase is complete. The buyer commonly fires excess employees if it has too many workers doing the 4

It takes time and effort to build

o

the right relationship and partnering with another business can be challenging. Problems are likely to arise if: o

The objectives of the venture are not 100 per cent clear and communicated to

o

everyone involved. o

Different cultures and management styles result in poor integration and co-

o

Risk of losing control over proprietary information, especially regarding complex transactions requiring extensive coordination and intensive information sharing. Sharing knowledge and skills can be problematic if they involve trade secrets. Risk of Foreign confiscation may arise.

o

Job Losses: A merger can lead to job losses.

same tasks after the buyout. Because employees are concerned about a future layoff, some employees will start looking for other jobs or quit after the company announces its acquisition plan. o

o

Lifespan

Long term

The returns from acquisitions may not be attractive. Executed cost saving may not materialize.

operation. o

The partners don't provide enough leadership and support in the early stages.

o

Success in a joint venture depends on

o

Risk that one partner will abruptly change priorities, strategies, or leadership, causing the alliance to falter

thorough research and analysis of the objectives.

Conflicts in objectives & disputation may arise. 

Long term

Can be both short term & long term

5

Can be both short term & long term