The document discusses the acquisition process which includes 10 phases split into pre-purchase and post-purchase activities. It covers developing a business plan, searching for targets, screening potential targets, and creating an acquisition plan with objectives and timelines.
The document discusses the acquisition process which includes 10 phases split into pre-purchase and post-purchase activities. It covers developing a business plan, searching for targets, screening potential targets, and creating an acquisition plan with objectives and timelines.
The document discusses the acquisition process which includes 10 phases split into pre-purchase and post-purchase activities. It covers developing a business plan, searching for targets, screening potential targets, and creating an acquisition plan with objectives and timelines.
The document discusses the acquisition process which includes 10 phases split into pre-purchase and post-purchase activities. It covers developing a business plan, searching for targets, screening potential targets, and creating an acquisition plan with objectives and timelines.
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Business &
Acquisition Plans The Acquisition Process
• We can think of M&As as a process culminating in
the transfer of control of the target to the acquirer. • For the purpose of exposition, this process can be split into two broad groups, consisting of 10 phases altogether. The Acquisition Process
• Pre-purchase activities. • Phase 1: Business Plan • Phase 2: Acquisition Plan • Phase 3: Search • Phase 4: Screen • Phase 5: Valuation and First Contact • Phase 6: Negotiation The Acquisition Process
• Post-purchase Activities • Phase 7: Integration Plan • Phase 8: Closing • Phase 9: Integration • Phase 10: Evaluation The Business Plan • The acquisition process begins with the development of a sound business plan. • This involves the following activities: • External or environmental analysis • Internal analysis • Mission statement • Setting objectives • Business strategy selection • Implementation strategy selection • Establishing strategic controls External Analysis
• The goal is to identify opportunities and threats.
• Identifying opportunities • Define the firm’s business and identify the market, i.e., current and potential customers. • Evaluate different markets and/or market segments for attractiveness and potential opportunities. • Criteria include size, growth rate, price sensitivity, profitability, entry/exit barriers, regulation. • A market attractiveness matrix can be a useful tool for summarizing this analysis External Analysis
• Identifying competitive threats
• Intensity of competition among existing firms • Potential for new entrants • Potential for substitute products • Bargaining power of customers • Bargaining power of suppliers • Government regulations Internal Analysis
• The goal is to determine the firm’s strengths
and weaknesses. • Important questions to ask: • How can our strengths be used to gain strategic advantage in the chosen market? • Can our strengths be easily duplicated by competitors? • Can our weaknesses be exploited by competitors? Internal Analysis
• This summarizes results of the external and internal analyses:
• Where and how the firm has chosen to compete. • Basic operating beliefs • Management values • Example: Ford • “People working together as a lean, global enterprise to make people’s lives better through automotive and mobility leadership.” • Catchy statement: “Great Products | Strong Business | Better World.” Setting Objectives
• Objectives are what the firm seeks to accomplish within
a specific time. • Must be measurable and have a time limit for achievement. • Examples include: • Revenue growth rates • Financial return rates • Market share • New products and/or markets • Workforce and/or asset growth rates. Business Strategy Selection
• A firm’s business strategy is its chosen approach
for achieving its objectives within the stipulated time. • Four basic strategies: • Price or cost leadership • Firm seeks to be the lowest cost producer in its market, e.g., through efficient production facilities, tight control of overhead expenses, and elimination of marginally profitable customers. Business Strategy Selection
• Product differentiation • Firms seeks to offer a unique product, distinguished by, for example, quality, branding, technological features, and alternative distribution channels. • Focus or niche strategy • Firm focuses on a single market, competing primarily on the basis of an in-depth knowledge of the niche market. • Hybrid strategies • Involves some combination of the above basic strategies. Implementation Strategy Selection • The implementation strategy is the firm’s choice of the best means to execute its chosen business strategy. • Five basic choices: • Solo venture • Partnering (e.g., alliances, joint venture) • Mergers and acquisitions • Minority investments • Swap assets Implementation Strategy Selection • Selection criteria include: • Degree of control • Varies from total for solo venture to minimal with a minority investment or being a minority partner • Degree of risk • Varies from total for solo venture to minimal for a minority investment partnerships in which risk is shared. • Degree of speed • May be fastest for an acquisition and slowest for a solo venture • Cash requirements • May be highest for an acquisition and lowest for a minority investment or partnership Strategic Controls
• Strategic controls are designed to ensure strategies work
according to plan. • Consist of incentive and monitoring systems. • Incentive systems motivate employees to accomplish objectives • Examples: bonuses, profit sharing, stock options • Monitoring systems track employee performance to ensure compliance with objectives. • Examples: performance reviews Acquisition Plans
• Develop an acquisition plan if an M&A is the
appropriate implementation strategy. • The plan consists of the following elements: • Plan objectives • Resource availability • Capabilities and expertise • Management preferences • Plan time-table Acquisition Plan Objectives
• Acquisition plan objectives provide targets that the
company intends to achieve through an acquisition. • Rights to specific products, patents, copyrights, or brands • Growth opportunities • New distribution channels • Additional production capacity • R&D capabilities • Access to proprietary technologies, processes, and skills Resources and Capabilities • Define resource availability • Determine the maximum amount of financial resources to devote to an acquisition. • Could be in terms of dollar amounts or relative to some variables such as revenue and/or total assets. • Evaluate capabilities, i.e., internal acquisition expertise • Ability to find an appropriate target • Valuation expertise • Personnel to make first contact • Negotiating skills of management team • Legal expertise Management Preferences • These form boundaries and/or limitations within which the acquisition team operates • Roles and responsibilities for the acquisition team • Acceptable methods for finding acquisition candidates • Acceptable sources of financing • Preferences for an asset or stock purchase and form of payment • Level of tolerance for goodwill • Openness to partial rather than full ownership • Willingness to launch a hostile takeover • Desire for related or unrelated acquisitions Acquisition Plan Time-table
• This a schedule of the key events that must take
place in the acquisition process. • Each event should have: • Beginning and ending dates • Estimated costs • Milestones along the way • Person responsible for ensuring that each milestone is achieved Acquisition Plan Time-table • Potential items on an acquisition plan time-table include: • Identify potential targets and choose eventual candidate • Develop preliminary valuation for chosen target • Initiate first contact with target • Conduct negotiation with target • Due diligence • Refine valuation • Deal structuring • Develop financing plan • Develop integration plan • Conduct closing and post-closing review Implementing Mergers & Acquisitions
Search, Screen, and Select Targets
The Search Process
• The goal is to be as inclusive as possible.
• Therefore, search criteria tend to be fairly broad but should be consistent with the firm’s business and acquisition plans • Can be stated in terms of industry (or sub-industry), location, and maximum/minimum value (sales, assets, or employees). • Computerized databases and directory services such as Disclosure, Dun & Bradstreet, Compustat, and Bloomberg can be helpful. The Search Process
• If confidentiality is not an issue, a firm may
advertise its interest in acquiring a particular type of firm in the business press. • The business press also often carry advertisements from sellers seeking potential buyers. • The search process can be contracted out to brokers and/or finders. Brokers and Finders in Search
• A broker has a fiduciary responsibility to either the
seller (target) or buyer (bidder). • A finder introduces both parties without representing either party. • Fee structures are normally negotiated and may include a basic fee, a closing fee, and an “extraordinary” fee (e.g., fees paid if closing is delayed due to antitrust review, a hostile takeover, etc.) Screening Potential Targets
• This is a refinement of the search process.
• It involves an increase in the number of selection criteria to reduce the list of potential candidates. • The goal is to be exclusive. Screening Potential Targets
• Additional criteria could include:
• Specific market segments and/or product lines • Operating profitability • Market share • Degree of leverage • Specific intellectual properties • Cultural compatibility • At the end of the screening process, the firm should have identified a handful of potential targets, ranked in order of preference.
