Chapter 15
External Growth Strategies:
Mergers, Acquisitions &
2013 Robert M. Grant
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External Growth Strategies:
Mergers, Acquisitions &
Alliances
OUTLINE
Mergers and Acquisitions: Causes and
Consequences
Strategic Alliances Motives
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The Motives for Mergers &
Acquisitions
Acquiring Resources or Capabilities
o Some resources and capabilities not transferable or
replicable: to obtain them may require acquiring
the entire company (e.g. Disney and Pixar)
o Acquisitions are especially important for
established companies seeking to acquire
emerging technologies (during 2005-11, Google
acquired 95 firms and Microsoft 71)
Cost Economies and Market Power
o Horizontal mergers (especially between
competitors) offer clearest benefits from mergers
in terms of scale economies and market power
(e.g. United and Continental airlines; Exxon and
Mobil)
Geographical Extension
o Acquisition is the most popular means of entry into
foreign markets by companies. Allows acquiring
firm to gain critical mass and overcome liabilities
of foreignness
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Consequences of Mergers &
Acquisitions
Financial Outcomes
o Many studies, inconsistent results
o In terms of returns to shareholders, main finding is
that shareholders of acquiring firms lose;
shareholders of acquired firms gain; combined
impact a v. small gain
If acquisitions destroy value for the
acquirer, why do they happen?
o Motivated by managerial goals (e.g. growth)
o Imitation (e.g. internationalization by banks,
merger wave among petroleum firms)
o Acquiring firms overestimate the benefits,
underestimate the costs
Learning effects
o Some firms more successful acquirers than others.
Acquisition capability the result of (a) learning
through experience (b) systematizing the approach
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to acquisition management
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Top-20 Mergers and Acquisitions of
the 21st Century
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Alliances & Joint Ventures:
Management Issues
Benefits
o Combining resources and capabilities of different
companies
o Learning from one another
o Reducing time-to-market for innovations
o Risk sharing
Problems
o Management differences between the two
partners. Conflict most likely where the partners
are also competitors
Benefits are seldom shared equally.
Distribution of benefits determined by:
o Strategic intent of the partners- which partner has
the clearer vision of the purpose of the alliance?
o Appropriability of the contribution-- which partners
resources and capabilities can more easily be
captured by the other?
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o Absorptive capacity of the company-- which
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