The facts:
  • M&A deal volume has been significantly higher in 2011 compared to 2010
  • 70-90% of these deals fail
Why do M&A happen?
  • companies have the financing to do so
  • M&A has the lure to managers that it will transform their business
  • It is seen as taking a bold step
What is the driving purpose for a manager to choose to merge with or a acquire another company?
  • improve the performance of a current business model – increase prices or improve cost positioning. This is called the “leverage my model” method.
  • fundamentally transform the business – expand to new markets, go after new customers. This is called the “reinvent my model” method
The two purposes are fundamentally different Reinvent my model transaction:
  • proven success example is when Best Buy acquired the Geek Squad. It was successful because it was a fundamentally different model in the store that gave them a new revenue stream but also supported the overall value proposition that they were offering to customers
Leverage my model transaction:
  • This is when a company is acquiring a set of resources that further strengthen existing models. You see this a lot of times in Pharma companies.
The Challenge:
  • Thinking through what are the specific resources to plug in, and are they pluggable? Companies usually get this wrong
What to do to avoid failurein merging with or acquiring a company:
  • Evaluate the type of transaction
  • Make sure the characterization is correct
  • Ask the question: Is the merger or acquisition supporting the overall value proposition that is offered to the customers?
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