CHAPTER TEN: Mergers and Acquisitions Acquisition (Buy-it) (p.

330) the purchase of one firm by another so that ownership transfers. Mergers: - The consolidation or combination of one firm with another. *Voluntary joining and integration of two (or more) organizations OR *Post-acquisition integration of acquired organizations activities Divestiture (Sell-off) (p.335) Spin-Off (Creation of new independent entity from a former division of a firm) Types of Acquisitions (p.337) Vertical Horizontal Complementary Market Value/Fair Market Value *Current Market Capitalization *The amount a willing buyer will pay a willing seller for a business Intrinsic Value (p.342) (Present Value of a Companys future cash flows from existing assets and businesses) Purchase Price (p.342) Acquisition Premium (p.342) The difference between the market value and the actual purchase price Required Performance Improvements (p.343) (Critical Measures) Due Diligence (p.350) Winners Curse (consequences of paying too much for an acquisition) (p.343) INTEGRATION (p. 349) - The actual process of combining operations post-merger or post-acquisition. - Some acquisitions do not integrate; for most mergers and acquisitions, successful integration is critical. - Integration typically includes products, systems, value chains and people. Most critical is retention of customer base.

The Due Diligence Process - The process of verification prior to finalization of an acquisition or merger to assure the buyer the company is as represented buy the seller. - This includes financial audits, operational audits, legal matters, and all aspects of the potential acquisition. - Due Diligence is analogous to a home inspection performed buy the buyer prior to purchase. M&As and Industry Life Cycle Recall the model of industry life cycle and industry dynamics that we presented in Chapter 4. In this section, well use this model to illustrate how different types of acquisitions play different roles in each stage. Introduction: During the introduction stage, acquisitions tend to involve the purchase of startup firms by well-established firms in related but more mature industry segments. Many partial acquisitions may occur, with established companies making equity investments in startups but not acquiring them outright. Thus, at this stage M&As tend to be R&D and product- and marketextension acquisitions. Growth: During this phase, we see several types of acquisitions. Established companies from one industry segment may start entering other segments with greater frequency, looking mostly for proven and growing targets. Although some M&A activity may be for R&D, most of it is likely to be for the purpose of acquiring products that are proven and gaining customer acceptance. The geographic roll-up also becomes more common, especially at the end of the growth stage and through the maturity stage. In high-velocity industries, industry-convergence acquisitions appear and continue into the maturity stage. Maturity: At this point, we begin to see overcapacity acquisitions. Why? During the growth stage, the industry witnessed the entry of new firms and aggressive expansion, with numerous competitors jockeying for competitive position. Capacity built during this period often exceeds the

long-term needs of the segment, and as demand starts to flatten, companies see consolidation as a way to rationalize the industry. Overcapacity M&A activity continues throughout the decline stage of the cycle. Valuation - The process of professionally determining the Fair Market Value of a business through the application of financial methodologies. - Fair Market Value: The amount a willing buyer would pay a willing seller for a business.

Key Lessons for implementing M & As Its a Continual Process, Not an Event Integration Management Is a Full-time Job Key Decisions Should Be Made Swiftly Integration Should Address Technical and Cultural Issues

CHAPTER ELEVEN: Organizational Structure, Systems, and Processes

Implementation Organizational Structure/Design Implementation Levers (p.367) Structure Follows Strategy Mechanistic vs. Organic Centralized vs. Decentralized (decision-making) Hierarchal vs. Flat (layers of management) Types of Structures: Functional Structure (p.368) Multi-Divisional Structures (p.369) ---Product ---Geographical ---Customer/Market Hybrid Structures ---Matrix (p.370) ---Network (p.371) ---Self-Directed Teams ---Strategic Business Units

---Ambidextrous Structure (p. 393) A structure for dynamic contexts in which Project teams are organized as independent (self-directed) units Balanced Scorecard Tool (p. 374) Strategic Mapping (p. 377) Concept of Patching (p.393) (Remapping/Modifying businesses due to changing market conditions and re-stitching into new business structures. Learning Organization/Continuous Improvement Model