Applied Mergers and Acquisitions. Robert F. Bruner

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СКАЧАТЬ This company will always win in a price war. A disadvantage of this strategy is that cost-minimization often requires a commitment to a particular product or process technology; such a commitment sacrifices flexibility. With technological innovation by competitors, this commitment can quickly turn from an advantage to a disadvantage.

      2 Differentiation. This seeks to create a sustainable competitive advantage through distinguishing the firm or its products sufficiently to command a higher price and/or a strong customer franchise. It is seen in industries where customer demand is diverse and therefore unable to be satisfied with a commodity product. In pursuing this strategy, one must ask whether the pricing power achieved through differentiation is sufficient to compensate for the investment necessary to achieve it. Differentiation succeeds to the extent that it is hard to imitate and that it generates superior investment returns. Firms pursuing a differentiation strategy will focus on innovation, techniques of market segmentation, brand management, product quality, customer service, and warranties.

      3 Focus or specialization. The focuser creates a competitive advantage by finding and dominating a market niche—there, the advantage springs from cost leadership or differentiation. This will be attractive where one can identify a niche of sufficient size to permit profitable and growing operations and where the firm has capabilities sufficient to serve demand. The disadvantage of a focus strategy is that the firm has all its eggs in one basket: Should the niche be successfully penetrated by a competitor, there will be no other market positions with which to mitigate the consequences.

      In addition to defining these classic success strategies, Porter’s analysis raises an equally important point: Don’t get stuck in the middle. He argues that it is very difficult to establish a sustainable competitive advantage through hybrids of these approaches. By trying to be all things to all people, hybrids may become nothing to anyone. Skeptics of this point to Wal-Mart and Toyota, firms that successfully pursue cost leadership and the differentiation of products or services. Still, the difficulty of finding successful hybrids may justify them as the exception, rather than the rule.

EXPANSION BY INORGANIC GROWTH

M&A transactions should flow from the business strategy for the firm. Yet mergers and acquisitions are only part of the range of possible transactions a firm might contemplate in seeking to implement its strategy. Exhibit 6.10 charts the variety of tactics and shows that they extend from transactions that grow or diversify the firm to transactions that restructure or focus the firm.

      In contemplating expansion of the business, executives first must decide upon the classic “make versus buy” decision: Should growth be organic (i.e., through internal investment) or inorganic (i.e., by investing or structuring an affiliation outside the firm)? A decision about make versus buy will typically follow from a strategic analysis and estimation of the prospective returns on investment from the alternatives.

      Motives for Inorganic Growth

      Strategists and scholars point to five main reasons why firms pursue inorganic growth:

      1 Maturing product line.

      2 Regulatory or antitrust limits.

      3 Value creation through horizontal and vertical integration.

      4 Acquisition of resources and capabilities.

      5 Value creation through diversification.

GROWTH IN THE CONTEXT OF A MATURING PRODUCT LINE Many businesses experience a life cycle of growth, as depicted in Part A of Exhibit 6.11. The explosive growth rates of the start-up phase of the business are eventually replaced by more sedentary growth. This is to be expected: High growth tends to attract imitators, who may sap the growth of the leader. Also, all the forces of turbulence (see Chapter 4) such as technological innovation, demographic change, deregulation, and globalization render products (and industries) obsolete. This degradation of the business in its maturity years can produce headaches for CEOs. A common response is to acquire new businesses, still early in their life cycles, to create a total growth trajectory. This strategy of buying growth to sustain a growth curve is illustrated in Part B of Exhibit 6.11. The executive must retain two criticisms about this motive:

EXHIBIT 6.10 Range of Transactions in a Decision Framework

EXHIBIT 6.11 Life Cycle of the Firm

      1 May harm shareholder value. This product life cycle perspective can create a frenzy for added revenue or earnings that ignores costs, investments, risks, and the time value of money. It is possible to achieve higher revenue growth and at the same time destroy shareholder value. See Chapters 9 and 17 for more about this.

      2 Is it sustainable? In the limit, a trajectory of a high real growth rate (i.e., relative to the real growth rate of the economy) is bounded by the size of the economy. Growing at an excessive rate for a sufficiently long period of time, the firm will eventually own the entire economy.

      GROWTH TO CIRCUMVENT REGULATORY OR ANTITRUST LIMITS Simply reinvesting in the core business may not be feasible if the firm operates under regulatory constraints. For instance, at various times broadcasters and banks have been limited in the scope of their operations. Inorganic growth through diversifying acquisition permits the maintenance of a growth trend. But like the previous point, one must critically assess the sustainability of growth and the impact on shareholder value of this kind of circumvention. The thoughtful CEO must relentlessly ask, “Is the shareholder better off if we return the cash through a dividend, and stop this growth program?”

      VALUE CREATION THROUGH HORIZONTAL OR VERTICAL INTEGRATION Improving economic efficiency may be served by integration of the firm with peers, or with suppliers and customers. Chapter 4 described the first two large waves of M&A activity in the United States as waves of integration.

      1 Horizontal integration entails combination with peer firms in an industry. This may exploit economies of scale, which will reduce costs, and market power, which may result in increased prices. Antitrust regulation seeks to forestall monopoly power in horizontal combinations (see Chapter 28).

      2 Vertical integration combines firms along the value chain. For instance, a steel manufacturer might acquire upstream operations (such as iron ore mines) and downstream operations (such as fabricators of steel products). Harrigan (1985) noted that vertical integration can create value if it improves economic efficiency by cutting out intermediaries and reducing overhead expense and redundant assets. Improved coordination through inventory and purchasing business processes may create further efficiencies. And strategically it may guarantee a source of supply in a tight market, preempting СКАЧАТЬ