PROFESSOR: Hello, everyone.
Welcome to Business School 101.
Big firms often use mergers and acquisitions
to better expand their businesses
and compete with their competitors.
For example, T-Mobile and Sprint completed their merger in 2020,
creating a new wireless carrier with a customer base of over 100
million subscribers.
In 2014, Italian automaker Fiat completed its acquisition
of American automaker Chrysler, creating Fiat Chrysler
Automobiles, the world's seventh largest automaker at the time.
Amazon acquired Whole Foods in 2017
to gain access to Whole Foods' customer
base and physical stores.
Google acquired YouTube in 2006 to expand its reach
in the online video market and gain access
to YouTube's large user base and content library.
So what are mergers and acquisitions?
Why do firms do that?
Are there some successful and failed real business examples
and useful strategies?
In this video, I will discuss these questions with you.
Section 1, definition--
Mergers and Acquisitions, or M&A,
refer to the process of combining two or more companies
into a single entity or acquiring
one company by another.
M&A deals can take various forms, such as a merger, where
two companies combine to form a new entity or an acquisition
where one company buys another.
The key difference between a merger and an acquisition
is the level of equality between the two companies involved.
In a merger, the two companies are typically
of roughly equal size and scale and come together
to form a new entity.
In an acquisition, one company purchases another.
And the target company becomes part of the acquiring company.
Here are two examples to illustrate
the differences between the merger and acquisition.
In 2016, Dell and EMC Corporation
completed a merger in which Dell acquired EMC for $67 billion.
The new company, Dell Technologies, was formed.
In this case, both companies were roughly the same size
and had complementary businesses,
making it a good fit for a merger.
In 2014, Facebook acquired WhatsApp for $19 billion.
The acquisition was not a merger of equals,
as Facebook was much larger than WhatsApp.
In this case, Facebook was interested in WhatsApp's
messaging technology and its large user
base, which aligned with Facebook's strategic goals.
Section 2, benefits-- here are the major benefits
of merger and acquisition.
Number 1, market expansion-- one of the main reasons firms
pursue M&A deals is to expand their market share
and access new markets.
By acquiring or merging with another company,
a firm can gain access to new customers, products,
and services that it may not have had before.
Number 2, synergies and cost savings--
M&A deals can create synergies between the two companies
involved, allowing them to combine their resources
and capabilities to achieve greater efficiency
and cost savings.
Number three, diversification-- M&A deals
can help firms diversify their operations
and reduce their dependence on a single product or market.
By acquiring or merging with a company in a different industry
or market, a firm can spread its risk and gain exposure
to new opportunities.
Number 4, acquire new technologies or capabilities--
M&A deals can provide a firm with access
to new technologies or capabilities
that it may not have developed on its own.
For example, a company may acquire
a startup that has developed a new technology or product.
Number 5, financial benefits--
M&A deals can provide a firm with financial benefits,
such as access to new sources of capital,
improved credit ratings, or increased cash flow.
By acquiring or merging with another company,
a firm can improve its financial position and gain access
to new sources of funding that it may not have had before.
Section 3, examples-- here are a few successful
and failed examples of mergers and acquisitions.
First, the Walt Disney Company and Pixar Animation Studios--
in 2006, the Walt Disney Company acquired Pixar Animation Studios
for $7.4 billion.
The merger brought together two of the most successful animation
studios in the world, allowing Disney
to expand its animation capabilities
and access Pixar's cutting-edge technology.
The merger was successful in terms of financial performance,
as the combined company's revenue
and profits increased significantly
in the years following the deal.
It also produced some of the highest-grossing animated movies
of all time, including Toy Story 3 and Finding Dory.
Second, Exxon and Mobil--
in 1999, Exxon and Mobil, two of the world's largest oil
companies, merged to form ExxonMobil.
The merger created the world's largest publicly traded oil
company, with a market capitalization
of over $400 billion.
The merger was successful in terms
of operational performance, as it allowed ExxonMobil
to streamline its operations, reduce costs, and increase
efficiency.
The combined company also benefited from improved access
to new oil reserves, which helped to boost profits.
In addition, the merger allowed ExxonMobil
to weather the volatility of the oil market
in the years following the deal.
Third Daimler-Benz and Chrysler-- in 1998, Daimler-Benz
acquired Chrysler in a deal valued at $36 billion,
creating DaimlerChrysler.
The merger was intended to create
a global automotive powerhouse that
could compete with rivals such as Toyota and General Motors.
However, the two companies struggled
to integrate their operations and cultures,
and the merger ultimately failed.
DaimlerChrysler suffered from a lack
of clear leadership, cultural clashes, and a failure
to capitalize on synergies.
The company's profits declined.
And in 2007, Daimler sold Chrysler
to a private equity firm for a fraction
of its original purchase price.
Fourth, Microsoft and Nokia--
in 2014, Microsoft acquired Nokia's handset business
for $7.2 billion, with the goal of expanding its presence
in the mobile market.
However, the acquisition turned out
to be a failure as Microsoft struggled
to integrate Nokia's hardware business with its software
and services.
Microsoft's mobile business continued to decline.
And in 2016, the company announced
that it would sell its feature phone business
to a subsidiary of Foxconn.
Section 4, failed reasons--
according to a study by the Harvard Business Review,
up to 70% of M&A deals fail to deliver
the intended value or benefits.
Here are several reasons why mergers and acquisitions
can fail.
Number 1, cultural clash--
companies that have different cultures and ways
of doing business may struggle to integrate their operations
and work effectively together.
Number 2, poor due diligence-- a lack of thorough due diligence
can result in unexpected problems and hidden liabilities
that can damage the success of an M&A deal.
Number 3, overpayment-- paying too much for an acquisition
can result in a failure to generate a positive return
on investment and put the company
in a precarious financial position.
Number 4, integration challenges--
the process of integrating two companies
can be complex and difficult, leading to delays, confusion,
and loss of key talent.
Number 5, strategic misalignment-- companies
may fail to align their strategic goals and objectives,
resulting in conflicting priorities and difficulty
in achieving synergies.
Number 6, regulatory issues.
M&A deals may require regulatory approval.
And failure to obtain necessary approvals
can prevent the deal from going through
or result in significant delays.
Number 7, failure to communicate-- failure
to communicate effectively with stakeholders, employees,
and customers can lead to uncertainty and resistance
to change, making it difficult to achieve
post-merger integration and success.
Section 5, strategies-- to avoid making the above mistakes,
here are some key steps to prepare for an M&A deal.
First, develop a clear strategy.
Before pursuing an M&A deal, companies
need to develop a clear strategy that
aligns with their long-term goals and objectives.
This strategy should consider factors
such as the target company's industry, financial position,
and potential for synergies.
Second, conduct due diligence.
Conducting thorough due diligence
is crucial to identifying potential risks
and opportunities associated with an M&A deal.
This includes analyzing financial statements,
legal documents, and other key information about the target
company.
Third, secure financing.
M&A deals often require significant amounts of capital,
so it's important to secure financing
in advance of the deal.
This may involve working with banks, investors,
or other sources of funding.
Fourth, plan for integration.
Successful M&A deals require careful planning
for post-merger integration.
This includes developing a plan for integrating
the target company's operations, employees, and culture
with the acquiring companies.
Fifth, communicate effectively.
M&A deals can be unsettling for employees, customers,
and other stakeholders.
So it's important to communicate effectively
throughout the process.
This includes keeping employees and other stakeholders informed
of the deal's progress and addressing any concerns
or questions they may have.
Sixth, seek legal and financial advice.
M&A deals are complex and involve many legal and financial
considerations.
So it's important to seek advice from experienced professionals.
This includes working with lawyers, accountants,
and other advisors who can provide guidance
on the legal, financial, and tax implications of the deal.
Section 6, summary-- mergers and acquisitions
refer to the process of combining two or more companies
into a single entity or acquiring
one company by another.
M&A deals can be complex and involve many legal, financial,
and regulatory considerations.
They typically involve extensive due diligence
to assess the risks and benefits of the deal, negotiation
of terms and conditions, and obtaining regulatory approvals.
The success of an M&A deal depends on various factors,
such as strategic fit, cultural compatibility,
and effective integration of the two companies.
All right, that's all for today's topic.
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