hero honda demerge
Chapter – IV
Managing Risks in Mergers, Acquisitions and Strategic Alliances
“There is a serious problem facing senior executives who choose acquisitions as a corporate growth strategy. My study reveals that fully 65 per cent of major strategic acquisitions have been failures. And some have been truly major failures resulting in dramatic losses of value for the shareholders of the acquiring company. With market values and acquisition premiums at record highs, it is time to articulate demanding standards for what constitutes informed or prudent decision-making. The risks are too great otherwise.”
- Mark L Sirower1.
Understanding the risks in mergers and acquisitions
A combination of factors - increased global competition, regulatory changes, fast changing technology, need for faster growth and industry excess capacity - has fuelled mergers and acquisitions (M&A) in recent times. The M&A phenomenon has been noticeable not only in developed markets like the US, Europe and Japan but also in emerging markets like India. In 1998, worldwide mergers and acquisitions were valued2 at $2.4 trillion. In 1999, this figure increased3 to $3.4 trillion. In 2000, the pace seemed to slow down, with only the Glaxo Wellcome – SmithKline Beecham merger valued at over $50 billion. However, the total value of the deals worldwide crossed $3.5 trillion. Much of this activity took place in the first half of 2000. The recent merger proposal by HP and Compaq is a clear indication that merger mania is well and truly alive. Like capacity expansion, vertical integration and diversification, a large merger or an acquisition is a strategic move since it can make or break a company. However, mergers and acquisitions involve unique challenges such as the valuation of the company being acquired and integration of the pre merger entities. Valuation is a subjective matter, involving several assumptions. Integration of the pre-merger entities is a demanding task and has to be managed
Managing Risks in Mergers, Acquisitions and Strategic Alliances
“There is a serious problem facing senior executives who choose acquisitions as a corporate growth strategy. My study reveals that fully 65 per cent of major strategic acquisitions have been failures. And some have been truly major failures resulting in dramatic losses of value for the shareholders of the acquiring company. With market values and acquisition premiums at record highs, it is time to articulate demanding standards for what constitutes informed or prudent decision-making. The risks are too great otherwise.”
- Mark L Sirower1.
Understanding the risks in mergers and acquisitions
A combination of factors - increased global competition, regulatory changes, fast changing technology, need for faster growth and industry excess capacity - has fuelled mergers and acquisitions (M&A) in recent times. The M&A phenomenon has been noticeable not only in developed markets like the US, Europe and Japan but also in emerging markets like India. In 1998, worldwide mergers and acquisitions were valued2 at $2.4 trillion. In 1999, this figure increased3 to $3.4 trillion. In 2000, the pace seemed to slow down, with only the Glaxo Wellcome – SmithKline Beecham merger valued at over $50 billion. However, the total value of the deals worldwide crossed $3.5 trillion. Much of this activity took place in the first half of 2000. The recent merger proposal by HP and Compaq is a clear indication that merger mania is well and truly alive. Like capacity expansion, vertical integration and diversification, a large merger or an acquisition is a strategic move since it can make or break a company. However, mergers and acquisitions involve unique challenges such as the valuation of the company being acquired and integration of the pre merger entities. Valuation is a subjective matter, involving several assumptions. Integration of the pre-merger entities is a demanding task and has to be managed
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