Norman, BUS 4385 Key Points: Chapter 7: Acquisitions and Restructuring Understand why firms choose to make acquisitions Understand why acquisitions fail Understand characteristics that make acquisition success more likely Understand the three types of restructuring (downsizing, downscoping, and leveraged buyouts)

Norman, BUS 4385 Entry Strategies for Diversification Mergers and Acquisitions Internal New Ventures Strategic Alliances

Norman, BUS 4385 Reasons for Acquisitions Increased market power (horizontal, vertical, related) Overcome entry barriers (e.g., distribution, brand loyalty) Compared to internal development Reduced cost of new product development Increased speed to market Lower risk Increased diversification Avoiding excessive competition

Norman, BUS 4385 Integration difficulties Inadequate evaluation of target Large debt Inability to achieve synergy Overestimating economic benefits Overdiversification Management focuses too much attention of acquisitions (ignore core businesses) Problems with large firm size Why do acquisitions fail?

Norman, BUS 4385 Characteristics of Successful Acquisitions Complementary assets or resources Friendly acquisitions Careful selection process Maintain financial slack (allows funding of projects/innovation) Low-to-moderate debt Flexibility Emphasize R&D and innovation

Norman, BUS 4385 Types of Restructuring Downsizing: a reduction in the number of employees and/or operating units Downscoping: divestiture, spinoffs, or some other means of eliminating businesses that are unrelated to a firm’s core businesses. Buyouts: managers and/or an external party buys all the assets of the business, largely financed with debt, and takes the firm private

Norman, BUS 4385 Downsizing Downscoping Leveraged Buyout Reduced Labor Costs Reduced Debt Costs High Debt Costs Loss of Human Capital Lower Performance Higher Performance Higher Risk Alternatives Short-Term Outcomes Long-Term Outcomes Emphasis on Strategic Controls Figure 7.2: Restructuring and Outcomes