1. Mergers and takeovers
3.2 Business growth

2. What you need to know a) Reasons for mergers and takeovers
b) Distinction between mergers and takeovers
c) Horizontal and vertical integration
d) Financial risks and rewards
e) Problems of rapid growth

3. Concept that link to M + T
Mergers & Takeovers

4. What is a Takeover?

5. Possible Reasons for Takeovers
Increase
Acquire new
Access
Secure better
Acquire intangible assets (brands, patents, trade marks)
Spread risks by

6. Possible Reasons for Takeovers
Overcome barriers to target markets
Defend itself against a
Enter new segments of
To eliminate

7. Why Might Takeovers be Preferred?
Existing products are in the later stages of their life cycles
Business lacks knowledge or resources to develop
of growth is a high priority

8. Drawbacks of Takeovers
High cost involved
Problems of valuation
Upset customers and suppliers
Problems of integration
Resistance from employees
Non-existent cost savings
Incompatibility of management styles, structures and culture
Questionable motives
High failure rate

9. Common Reasons Why Takeovers Fail
Price paid for takeover was too high (over-estimate of synergies)
Lack of decisive change management in the early stages
The takeover was mishandled
Cultural incompatibility between the two businesses
Poor communication, particularly with management, employees and other stakeholders of the acquired business
Loss of key personnel & customers post acquisition
Competitors take the opportunity to gain market share whilst the takeover target is being integrated

10. Types and Direction of Integration

11. Directions of Integration
Explanation
Forward + vertical
Backward + vertical
Horizontal
Conglomerate

12. Benefits of Horizontal Integration
1.Achieve economies of scale
2.Cost synergies ( ) from the rationalisation of the business.
3.Potential to secure revenue synergies
4.Wider range of products - (i.e. diversification)
5.Reduces competition by removing key rivals – this increases market share and long-run pricing power
6.Buying a existing and well-known brand can be cheaper than organically growing a brand – this can then make the entry barriers higher for potential rivals

13. Examples of Horizontal Integrations
Jan 2016: UK DIY chain Homebase sold to Australian retail giant Wesfarmers for £340m
Dec 2015: Domino's buys largest German pizza chain for $86m
Dec 2015: US chemical giants DuPont and Dow Chemical Co agree to merge in deal worth £86bn + plans to split into three.
Nov 2015: Marriott agrees a $12bn merger with Sheraton hotels owner to create one of world’s biggest hotel chains
Nov 2015: AstraZeneca in $2.7bn deal for biotech firm ZS Pharma

14. Benefits of Vertical Integration
Enables a business to capture a greater on each sale
Secures important sources of or
Create a to potential new competitors
Gain greater insights into customer needs and wants at each stage of the

15. Examples of Vertical Integration
Nov 2015: Apple buys Star Wars motion-capture company Faceshift
Nov 2015: Ikea Buys Romanian, Baltic Forests to Control Its Raw Materials

16. What is a Merger?

17. The Difference between a Merger and a Takeover

18. More on Mergers
A merger is a which is achieved by forming a completely firm into which the two original firms are integrated.
A merger can be seen as a decision made by two businesses that are broadly “equal” in terms of factors such as size, scale of operations, customers etc.

19. Examples of Mergers 2010: British Airways and Iberia merge to form IAG
2000: Glaxo Wellcome plc and SmithKline Beecham plc merge to form GSK plc
2014: Dixons plc and Carphone Warehouse merge to form Dixons Carphone
2015: Paddy Power and Betfair merge to form Paddy Power Betfair
2015: H.J. Heinz Company & Kraft Foods Group merge to form The Kraft Heinz Company