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2.Write a note on the five-stage model of mergers and acquisitions. A Explanation on five stage model of mergers and acquisitions

July 24, 2014 By: Meliza Category: 1st SEM

The brief explanation of the above stages of merger is given below:

 

Stage 1: Corporate strategy development

Corporate strategy is concerned with the ways of optimizing the portfolios of businesses that a firm currently owns and with how this portfolio can be changed to serve the interests of the corporation’s stake holders. Merger and acquisition can serve the objectives of both corporate and business strategies despite their being the only one of several instruments. Effectiveness of merger and acquisition in achieving these objectives depends on the conceptual and empirical validity of the models upon which the corporate strategy is based. Given an appropriate corporate strategy model, mergers and acquisition is likely to fail to deliver sustainable competitive advantage. Corporate strategy analysis involves has evolved in recent years through several paradigms-industry structure-driven strategy, competition among strategic group, competence or resource based competition etc.

Stage 2: Organizing for acquisitions

One of the major reasons for the observed failure of many acquisitions may be that firms lack the organizational resources and capabilities for making acquisitions. It is also likely that the acquisition decision-making processes within firms are far from the models of economic rationality that one may assume. Thus a pre condition for a successful acquisition is that the firm organizes itself for effective acquisition making. An understanding of the acquisition decision making process is important, since it has a bearing on the quality of the acquisition decision and its value creation logic. At this stage the firm lays down the criteria for potential targets of acquisitions consistent with the strategic objectives and value creation logic of the firm’s corporate strategy and business model.

 

Stage 3: Deal structuring and negotiation

This stage consists of:

  • Valuing target companies
  • Choice of advisers (investment banker, lawyers, accountants etc) to the deal
  • Obtaining and evaluating about the target from the target as well as from other sources.
  • Performing due diligence
  • Determining the range of negotiation parameters
  • Negotiating the positions of senior management of both firms in the post-merger dispensation
  • Developing the appropriate bid and defence strategies and tactics within the parameters set by the relevant regulatory regime etc.

 

Stage 4: Post-acquisition integration

At his stage, the objective is to put in place a managed organization that can deliver the strategic and value expectations that drove the merger in the first place. The integration process also has to be viewed as a project and the firm must have the necessary project management capabilities and programme with well defined goals, teams, deadlines, performance benchmarks etc. Such a methodical process can unearth problems and provide solutions so that integration achieves the strategic and value creation goals. One of the major problems in post-merger integration is the integration of the merging firm’s information systems. This is particularly important in mergers that seek to leverage each company’s information on customers, markets or processes with that of the other company.

 

Stage 5: Post-acquisition audit and organizational learning

The importance of organizational to the success of future acquisitions needs much greater recognition, given the failure rate of acquisitions. Post-merger audit by internal auditors can be acquisition specific as well as being part of an annual audit. Internal auditor has a significant role in ensuring organizational learning and its dissemination.

 

 

 

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