kone germany strategy

7/28/2019 Kone germany strategy

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A Companys Strategy-

Making Hierarchy


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Tasks of CorporateStrategy

Moves to achieve diversification

Actions to boost performance of individual businesses

Capturing valuable cross-business synergies toprovide 1 + 1 = 3 effects!

Establishing investmentpriorities and steeringcorporate resources into themost attractive businesses


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Corporate Strategy

Economies of Scale: cost per unitdecreases as volume goes up

and Scope: Same raw material an semi-finished materials and production

processes to make a variety of products.Multi-brand strategies successful at this.

Scope: Also management/overhead

activities


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Corporate Level Rules

First Mover advantage Huge (thoughissues?)

Logic: The right combination of scale andscope economics, marketing anddistribution power, management structure,

and first mover (all intertwined and rely onone another) = corporate strategy.

Few firms can rely on internal sources of

growth alone. (what does this mean?)


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Types of Strategic Fits Cross-business strategic f i tscan exist

anywhere along the value chain

R&D and technology activities

Supply chain activities

Manufacturing activities

Distribution activities

Sales and marketing activities

Managerial and administrative support activities


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One Strategic Option: Single product line

Concentrated Growth

Focus on single product line (ex. Apple,McDonalds, Mack Truck, John Deere)

Must:

1)No major technological advances2)Not product saturated/alternatives for growth3)Competitors difficult to enter market4)Inputs are stable

Why single product line powerful? Why do wesee many firms spin-off in todays global

marketplace?


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Vertical/Horizontal Integration

Vertical: Industry Value Chain (backwardmore profitable than forward)

Horizontal: increase range of productsoffered to current markets or into newgeographic location

(Use of strategic alliances)


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Diversification

How used: new industries, technologies,supplier bases, customer segments,

geographical regions, sources of funds

In Strategy: investing corporate resources

in a number of different product/marketcombinations


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Entering other markets or Diversification

1. What can we do better than any of thecompetitors in our market?

2. What strategic assets are needed to succeed(Implementation)?

3. Leapfrog competitors? (change the rulesWalMart Banking)

4. Hurt our strategic assets if we diversify?

5. If we diversify, will we be a leader or in thepack?

6. Can we learn by diversifying, are we organizedto do so?


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Strategies for Developing New

CapabilitiesAcquire existing company

Internal start-up

Joint ventures/strategic partnerships


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Group Work

Acquire

Develop Internally

JV/SA

1) What are all the variables that must betaken into account when considering eachof these?

2) What are the strengths and weaknesses ofeach?


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A Career

Differentiating between emotion and fact

Understanding goals and benchmarks

Succeeding is vague/but known

How get in the business

How get better


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General Motives for a M&A

Opportunity

Threat or Opportunity

Strategic

Organizational (change agent)

Brand

Is it hard to get a good deal anytime?


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Steps

Strategic Analysis Develop Acquisition Plan

Establish Screening criteria

Generate Deals

Narrow the field

Due Diligence

Documentation

How to Finance/Deal Design

Negotiation / Bidding

Integration

1. Leadership2. Communication

3. Managing4. Key Personnel


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Introduction: Acquisitions

Continues to be one of the most popularGlobal strategies for firms

$2.9 trillion in 2005

$3.4 trillion in 2006In 2007, $4.367 trillionFell $1.1 trillion 2008, volume dropping 15,256

deals in 2007 to 12,018 in 2008

2010 = 2.66 trillion2011 = 2.6 trillion2012 = 2.6 trillion


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Typical research:$500 million plusMeasure of success/performance Often short

term stock price (days before/after)

Secondary data

Must have significant ownership

USA based (Researchers have suggestedcannot publish this type of research in TopJournals otherwise: Grinstein and Hribar, 2004)

Publicly traded: (Although 75 percent of the firmsacquired in the United States between 2000 and2004 were privately held) Capron/Shen, SMJ 2009


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Theoretical reasons for Acquisitions

(Used in the past)Transaction Cost Economics (bounded rationality (incomplete contracts) andopportunism (acting with guile), uncertainty, frequency, asset specificity)

Make or Buy (diadic)Agency Theory (information asymmetry, uncertainty and risk)

TMT (top management team)HubrisRisk AversionCompensationCharacteristics (Age, tenure, global experience, stock option in the money,

etc.)

Board of DirectorsLarge holdings of stock (active)Inside/Outside DirectorsDirector Charcteristics (previous acquisition experience, etc.)

Market for Corporate Control


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Theoretical reasons for Acquisitions

(Contemporary)Institutional Theory (Especially for Global

Acquisitions)

RBV (Resource Based View): ComplementaryResources

Network Theory

Dynamic Capabilities

Knowledge Based View


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Market for Corporate Control

(Agency Theory) and TMTTMT (top management team) of target firms leaves

losing about 2/3, even higher if the acquirer is

a multinationalMarket for corporate control suggests that target

firms underperforming TMT is fired

Synergy literature suggests TMT let go, loweringcosts


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Research also suggests to retain the

TMT after Acquisition

Loss will heighten the level uncertainty affects thecommunication

For integration of complementary human resources

TMT tacit knowledge is the most strategically importantresource

Synergy; expertise needed for post-acquisition integration

TMTs participation in the buy-in, development and

implementation monitoring systems

SO WHICH IS IT? WHY?


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What is a hostile takeover?

Are there many hostile takeovers?

What are the issues with these?


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M&A. Does this exist?

What are other ways instead of acquisition?

Strengths and weaknesses of each.

So why acquire?


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Booz & CompanyDATE

digitalnow.ppt Prepared for client name

Customers

Suppliers

For most industries, competition is intensifyingfrom all of Porterfive forces

Low cost

global rivals

New entrants

Radical new

business models

The Internetchanges

everything

Global race for

raw materials

Suppliers

moving up to

become rivals

Supply-chain

transparency

Regulatory and

other barriers

continue to fall

Consolidation

provides little relief

Rivalry

Customers

wallets are flat

Super-

empowered

customers know

more than ever

Trading downNew media vs. old mediaSubst i tutes


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Every organization also faces intense pressure in terms ofoperational effectiveness and strategic differentiation

Operational effectiveness

means performing similaractivities betterthan rivals

perform them.In contrast,

strategic positioning means

performing differentactivities

from rivals or performing similar

activities in different ways.

E ti ll d i t di ti t t i t


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Executives, pulled in too many directions, say strategies are notclearly defined or likely enough to succeed

Booz & Company survey of 1,800 execs shows they believe

% of

their strategy

will lead to

success

theircompanys

capabilities fully

support their

their company

has a right to win

in all the markets

they have too

many conflicting

priorities

respondents strategy in which it

competes64%

48%

33%

21%

Why is it that with so many available strategy frameworks many


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Why is it that with so many available strategy frameworks manycompanies still struggle with sustained value creation?

AdaptationAct quickly and creativelyin response to events(organizational warning)

Evolution of Strategy

Future

Michael PorterCompetitive Strategy

1980Henry MintzbergThe Rise and Fall ofStrategic Planning

PositionExploit the high ground: createand hold a distinctive position

(market-back strategy)

W. Chan Kim &Rene MauborgneBlue Ocean Strategy

1994 Bruce Henderson

Essays

2005

Many

W. Edwards Deming

Tom Peters &Robert Waterman

In Search of Excellence1982

William Abernathy &Robert Hayes

Managing Our way to

Gary Hamel &C.K. Prahalad

1966 Kenneth AndrewsThe Concept of

Corporate Strategy1971

Few

Out of the Crisis1986

Execution

Ram Charan &Larry Bossidy

Execution2002

Economic Decline

1980

Michael Hammer &James Champy

Competing for the Future

1994

Chris ZookProfit from the Core

2001

Concentration

Align people and processesfor operational excellence(the quality movement)

Reengineering the Corporation1993

Present

Focus on your currentcore business

(private equity)

Strategy in a single slide


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Strategy in a single slideFuture

First and foremost,

CHANGE

First and foremost,

DIFFERENTIATE

Many Few

First and foremost,EXECUTE

First and foremost,

STICK WITH WHATYOU KNOW

Present

The essential strategic choice is


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The essential strategic choice isabout the identity of a firm

From struggling with push-me,

pull- me tensions

Strategic thinking often centers ontensions between long term vs.short term, and many vs. few

Leaders tend to "yin and yang" betweenthese tensions over time in apoint/counter- point fashion

The inescapable truth is that (a)

advantage is transient but (b)

companies are sticky

There is no winner between these

tensions, only a resolution of

them at a higher level

To Seeking the Answers to these sets ofQuestions:

Positioning questions:How are we going to create value for ourcustomers?How do we position ourselves vis a vis

competitors?Where will we play and where not?

Resource questions:What intellectual, financial, tangible, andtangible capabilities and assets can orshould we deploy?Do we build, buy, or rent them?Which matter most?

Market questions:What do we sell, and to whom?Whats our portfolio of offerings--whatbusiness lines, what products, whatservices?


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Coherence confers the right to winThe Power Of Coherence

A coherent company strikes a balance where the right product and service portfolio naturally thrives within

a capabilities system consciously chosen and implemented to support a deliberate way to play

HOW WILL WE

CREATE VALUE FOR

OUR CUSTOMERS/

MEMBERS?

WHAT MUST WE DO

WELL TO DELIVER

THAT VALUE

PROPOSTION?Essential

Advantage

WHAT ARE WE

GOING TO DELIVER

TO WHOM?


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Booz & CompanyDATE

digitalnow.ppt Prepared for client name 9

Why do coherent choices create value?

Effectiveness

Focus and dedication on creating a winning capabilities system in your way to playBarriers for competitors who are less coherent, with less effective capabilities Ongoing improvement engine for the few capabilities that matter

Efficiency

FocusedInvestment

Highlighting of what is non-essential through clarity on way to play Less spend on those capabilities that are non-differentiating Capability scale through focus and often ability to deploy more broadly

Provision of objective for the enterprise the value behind the portfolio Direction of capital and attention to those opportunities that extend a capabilities lead Guide for both organic growth and M&A decisions

Alignment of strategic intent and day-to-day decision making thanks to capabilitieslens

Organization moving in lockstep and executing faster and with more force Talent attraction to organizations that clearly value what they do

Alignment


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Financial CoherentFamiliarGood

Portfolioassembled

for financial

compatibility

Strong

brands or

other

performance

characteristi

cs

Industry or

marketbased know-

how and

management

practices

presumed

similar

Businesseslinked by

capabilities

or common

assets

Coherence Continuum


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32%

28%

Coca-Cola

EBIT Margin2003-2007

24%

20%

16%

Campbells

General Mills

Kraft

Clorox

P&G

Heinz PepsiCo

Kimberly Clark

Wrigleys

12%

8%

ConAgra

Sara Lee

UnileverNestle

Size of bubble: Revenue

4%

0 20 40 60 80 100Capabilities Coherence Score

COHERENCE PAYS


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Capabilities must be mutually reinforcing and integratedinto a system that best supports a chosen way to play

Example: The Pepsi-Frito Lay Capabilities System

Direct-store delivery (DSD)allowing easy testing of newproducts by introducing them ina handful of stores

Continuousinnovation of new

products with storelevel response

information goingdirectly to R&D

Skilful global consumermarketing to rapidly builddemand for initiallysuccessful products

Way to PlayRapid innovation, distribution and marketing to stimulate and meet

customer snacking needs

A starting point: Is our strategy coherent?


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A starting point: Is our strategy coherent?The Coherence Test

Can We State It? Do We Live It?

Way to PlayAre we clear about how we choose to create value for

our members? Are we investing in the capabilities that really matter to

our way to play?

CapabilitiesSystem

Can we articulate the three to six capabilities thatdescribe what we do uniquely better than anyone else?

Have we defined how they work together in a system? Do our strategy documents reflect this?

Do all our service offerings draw on this superiorcapabilities system?

Do our organizational structure and operating modelsupport and leverage it?

Does our performance management system reinforce it?

Product &

Service Fit

Have we specified our product and service sweetspot?

Do we understand how to leverage the capabilitiessystem in new or unexpected arenas?

Do most of the products and services we offer fit withour capabilities system?

Are new products and acquisitions evaluated on thebasis of their fit with the way to play and capabilitiessystem?

Coherence

Can everyone in the organization articulate ourdifferentiating capabilities?

Is our associations leadership reinforcing thesecapabilities?

Do we have a right to win in our chosen field? Do all of our decisions add to our coherence, or do

some of them push us toward incoherence?


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M&A

Follows the coherence test

The reason for M&A

Seeking Frms to answer the questions,and ever changing needs.


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Acquisition of an Existing Company

Most popular app roachto

diversi f icat ion

Advantages

Quicker entry into target market

Easier to hurdle certain entry barriers

Acquiring technological know-how

Establishing supplier relationships

Becoming big enough to match rivalsefficiency and costs

Having to spend large sums onintroductory advertising and promotion

Securing adequate distribution access


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Vertical Integration Strategies

Extenda firms competi t ive scopewithinsame industry

Backwardinto sources of supply

Forwardtoward end-users of final product

Problems going backward or forward? So why?

Internally

Performed

Activities,

Costs, &

Margins

Activities,

Costs, &

Margins of

Suppliers

Buyer/User

Value

Chains

Activities, Costs,

& Margins of

Forward Channel

Allies &

Strategic Partners


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When the CEO of Schick (disposal razers)stated he was going to buy Duracell (batteries)the stock dropped by 15% and I agreed, becausethe CEO said (as is always the norm from an

Agency Theory perspective), he was going to get

synergies. We could not see how, but then in a fewdays knowing his mistake of not enough information,the CEO explained and the stock went up. Wherewere the synergies?


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Related vs. Unrelated Diversification

Related Diversif icat ionInvolves diversifying into

businesses whose value

chains possess

competitively valuablestrategic fits with value

chain(s) of firms present

business(es)

Unrelated Diversif ic at ionInvolves diversifying into

businesses with no

competitively valuable

value chain match-ups orstrategic fits with firms

present business(es)

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Figure 8.2: Related Businesses Possess Related Value


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Chain Activities and Competitively Valuable Strategic Fits

8-44


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Strategic Appeal of Related Diversification

Reap compet it ive advantagebenefitsof

Skills transfer

Lower costsCommon brand name usage

Stronger competitive capabilities

Spreadinvestorr isksover a broaderbase

Preserve strategic un i tyacross

businesses

T f St t i Fit


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Cross -business s trategic f i ts can exist

anywhere along the value chain

R&D and technology activities

Supply chain activities

Manufacturing activities

Distribution activities

Sales and marketing activities

Managerial and administrative support activities

Types of Strategic Fits

Core Concept: Economies of Scope


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Core Concept: Economies of Scopeoften Called Synergies

Stem from cross-business oppo rtuni t ies

to reduce costsArise when costs can be cut by operating two or more

businesses under same corporate umbrellaCost saving oppor tun i t iescan stem from strategic fitsanywhere along the value chainsof differentbusinesses.

Rarely is this successful In long term..

Let us stop and discuss Psychological contract.


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How do you value a firm?

How do you find an acquisition target?

How much do you pay?


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Term Sheet


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Steps

Strategic Analysis

Search

Due Diligence

Negotiation / Bidding

Legal

Deal Design

Integration

1. Leadership

2. Communication3. Managing4. Key Personnel


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Cross Border

Significant

Disruptive: Why?

Time consuming: Why?

Different from domestic: How?

Country specific: Why?

Affects analysis and due diligence


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Cross Border

More likely to be related

(What is related versus unrelated?)

Payment in cash: Why?

Competitor reaction different: Why?


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First Round Document


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Cross Border: Macroeconomy

Issues Fiscal Policy

Monetary Policy

Trade Policy

Intervention Policy

Employment Policies


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Cross Border: Microeconomy

Issues Industry Structure

FDI issues

Infrastructure

Porters Diamond


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Cross Border: Institution Issues

Banks

Financial Markets

Legal

Watchdogs

Education


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Cross Border: Cultural Issues

Business Practices

MoW

Hofstede stuff

Leadership

Entrepreneurship


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Cross Border and Valuation

Inflation

Exchange

Tax rates

Cash transfers

Accounting principles

Political Risk

Vendors

Suppliers

Customers Social Risk (not

to buy foreign)

Corruption


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Due Diligence

Checklist and Global and private

Page 228


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Due Diligence

Can degrade to checking facts

Keep in mind the whole strategic picture

Keep in mind if you have to manage thefirm after purchase

What is the risk?

Does it feel right


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Due diligence

Time pressure

Reluctance to offend

Price versus worth (targets perspective) =conflict

Too brief

Situation always changing

Hidden unknowns


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Due Diligence

Seek patterns

Talk to employees (if possible)

Understand employee mood

Prepare for integration / corporate culture

Been frank whenever possible

Be inquisitive but not invasive

Develop relationship


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Due diligence Major focus

Legal

Accounting

Tax

IT

Risk

Insurance

Warranty

Corporate Culture

Market share / BrandOperations and Supply

ChainEquipmentProperty / Lease

IPFinanceCross BorderHR


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Who wants this deal to get done?1) Publicly traded?2) Private

Or are there any differences?


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TMT (top management team)

Berkshire HathawayManagement in place (they wont supply it,

and Managers must remain significant ownerswho continue to run their companies as they

have done so in the past Large purchases

Consistent earnings

Good returns on little debt

Simple business

WHY?

B k hi H th 2011 A l R t


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On September 16th we acquired Lubrizol, a worldwide producer of additives

and other specialty chemicals. The company has had an outstanding recordsince James Hambrick became CEO in 2004, with pre-tax profits increasingfrom $147 million to $1,085 million. Lubrizol will have many opportunities forbolt-on acquisitions in the specialty chemical field. Indeed, weve alreadyagreed to three, costing $493 million. James is a disciplined buyer and a superboperator. Charlie and I are eager to expand his managerial domain.

Berkshire Hathaway: 2011 Annual Report

Charlie and I measure our performance by the rate of gain in Berkshires per-share intrinsic business value. If our gain over time outstrips the performance ofthe S&P 500, we have earned our paychecks. Ifit doesnt, we are overpaid atany price. We have no way to pinpoint intrinsic value. But we do have a useful,

though considerably understated, proxy for it: per-share book value. Thisyardstick is meaningless at most companies.


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How Accountants like to value

Book value

Liquidation value

Replacement cost (of assets)

Current market value

Discounted cash flow

Multiples


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How to value strategically

After acquisition, target valuation

Synergy

After acquisition, our valuation

Value of intangible (like?)

Value of long term association

Value in combination with otheracquisitions (stream!)


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How measure success?

Stream?


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Which is easier for long-term success:

Buying a small private firmor a Publicly traded firm?

D l D i


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Deal Design

Price is unimportant (is this a surprise?) Do I buy a poorly performing firm and get

a deal?

Trade-offs Whole deal view systems approach

How pay?

How Finance?

Timing

Commitments and follow-up


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Deal Design

Controls

Governance

Decentralization versus Centralization

Internal Power alignments

Synergistic firings / closings


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Deal Design Issues

Feedback and flexibility

Speed and momentum (but beware of the

rush) Simplicity versus complexity (where is the

strength in the deal?)

Initial meetings and reinforcement overtime (why there is one point of majorcontact)


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When to say no an stop?

Winners curse?

Escalation of commitment?


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Integration

Where M&A mostly fails: Why?

Autonomy

Interdependence Control

Speed Important

Flexible

R f M&A F il (60%


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Reasons for M&A Failure (60%

fail to deliver value)ExecutionPoorLeadership

23%

Poor

Integration

21%

Cultures toodifferent

22%

Unclear

Leadership

18%

Wrong Focus 16%


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Major Risks

Approach Risk

Resources focused on transaction and not integrationand its costs

Wrong targets

Handoff Risk

No recognition of the unique source of value

Poor transfer of knowledge to integration team

Execution Risk

Failure to mobilize and capture value

Lack of resources

No accountability for value capture


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Top 12 Best M&A Practices

Approach

1.Focus on Source of value

2.Calculate Maximum price early3.Need superior Due diligence


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Execution

1.Address integration early, especially

management and culture.2.Quantify target success

3.Speed in integration

4.Focus on value drivers

5.Small rapid integration teams


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Execution (continued):

6.Align Roles and responsibilities and

communicate these7. Retention/Retention/Retention

8. Culture: Humanize the M&A

9. Communicate frequently to allstakeholders in regard to implications andprogress


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Integration

Uncertainty

Employee issues

Change Management Objectives set

Culture needs to change

Value Chain


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Integration

Start at the beginning

Point man / leader

Communication Deadlines

Talent retention plans

Production / Supply Chain Management

Intangible retention

MIS


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Speed Errors

1. Obsessive list making

2. Content free communication

3. Too many planning meetings/committees4. Ignoring hierarchy

5. Too much Emphasis on vision/values

6. Rewarding A, getting B


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Integration Maxims

Publish/Communicate Integration (if at all)plan

Clear targets Integration short

Swift decisions (mostly decentralize)

Involve many employees (both sides)

Common MIS (if possible)


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MRP/LP Email Case


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JV example

Alcatel/Lucent example


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M&A Trends1. Booming Demand

2. Supply/Demand shift toremote, unstable locations

3. Demand shift in Asia

4. Middle East cheapenergy = diversification

5. Natural resourcesdepleting fast

6. Massive capital required

8. Supply security

9. Scarcity of Talent

10. Global labor market

11. New, low cost players

12. Niche companies in newtechnologies*

13. Private Equity

14. Restructuring undervalued

Conglomerates


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M&A Trends15. Low priced firms

16. Antitrust Regulations

17. Cross-borderRegulations

18. Traditional MNCconsolidation

19. Competition for Assets

20. Rise of Sovereign Funds

21. Alternative Industries

growth, fragmented*

22. Low R&D, demand fornew technologies

23. Credit Crunch

24. Foreign entities

25. Political instabilities

26. De-regularization,

Unbundling


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Biggest Trend

Earnings Per Share growth expectations

are way above what companies can

achieve in most territories from organicgrowth alone

John McConomy, US Power and Utilities Transaction Services Leader,

PricewaterhouseCoopers


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Two Major Rationale for M&As:

1. Cost Reduction (how effective?Synergies?)

2. Growth


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Strategies for Growth

1. BaseRetention

2. Share Gain

3. Positioning4. Adjacent

Market

5. NewBusiness

GROWTH

Double-Digit Growth, Michael Treacy


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Rationale for M&As: Growth

Expansion

1.Consolidate

2.Geographic3.Distribution

4.Compensate

Transformative

1.Portfoliorefocus

2.Diversification

Easier Tougher


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Rationale for M&As: Expansion

Expansion

1.Consolidate

2.Geographic

3.Distribution

4.Compensate

1.Gain Scale to compete2. Integrated Solutions

3.Financial Growth

4.Supply (security, mix)

5.Developing markets

6.High cost of Extra Capacity


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Rationale for M&As: Expansion

Expansion

1.Consolidate

2.Geographic

3.Distribution

4.Compensate

9.De-regularization10.Demand outstrip supply

11.Revenue Mix Tax

optimization

12.Talent

13.New, Low-cost Entrants

14.Undervalued Big Players

15.Newer Assets


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Rationale for M&As: Transformative

Transformative

1.Portfoliorefocus

2.Diversification

1. New Business Lines2. Selling/Spin-off non-core

3. Increase product line

4. New customers5. New technologies

6. Complementary Business

7. Up-down Supply Chain8. Patent

9. Convergence anticipation

Rationale for M&As: Cross


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Rationale for M&As: Cross

SectorsTraditional

AlternativeIncremental


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Rationale for M&As: Cross Sectors

TraditionalUtility

Alternative

Energy

Incremental

Technology

New Delivery, New Sources,Existing Resources

Oil, Gas,Electricity, Coal

Biomass, Nuclear,Ethanol, Wind, Solar

Example:Energy Sector


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Why are international acquisitions more difficult?

Possible Outside Acquirers or Investors


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q

InstitutionalFund Managers

Corporations

Sovereign Funds

VCs

NGOs

Non-Profit Org

Financial (Loans)

JV Partners

M&A

Social VCs

Holding Co.

Gov. VCs

Supply Chain

Gov. Partnership

Competitors

Why do Outsiders Acquire or Invest?


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Why do Outsiders Acquire or Invest?

1. Return/Profit2. Risk Management/

Hedging

3. Tax-benefits

4. CSR/Image

5. Diversify revenue

6. Counter-cyclical

balance7. Support Mission

8. Exclusive rights

8. Contractual obligation9. National Agenda

10. Control Supply Chain

11. R&D portfolio

12. Control Management

13.Alternative Cash Flow


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3. Strategies, Structure, and

Optimizing Value in M&As

S i f G h


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Strategies for Growth

1. BaseRetention

2. Share Gain

3. Positioning4. Adjacent

Market

5. NewBusiness

GROWTH

Buying Market Share: Side


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Buying Market Share: Sidenotes on Funding

Preferable OK, but not preferred

1. Cash from Earnings

2. Cash fromBorrowings

1. Cash from Stock sale

2. Issue more stock

Strategy 4: Invade Adjacent


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Strategy 4: Invade AdjacentMarkets

Adjacent Market = Important Similarities andLarge Differences in:

1. Cost Structure2. Competitors

3. Customers

4. Critical Capabilities



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Traditional

AlternativeIncremental



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Upstream Midstream Downstream

DistributionConversionRaw Mat

Vendors/Services



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Is it a promising market?

Best when market is new and not stable

You must time your entry carefullyEntrenched companies usually delay

embracing new technology or process

Can you win in this market?

Must be built on advantages that are tangible,practical and easily implemented



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Strategy 4: Invade AdjacentMarketsCan you match the Standards of

Competition in this Market?

You do have to meet the quality level that iscommon in the market

Three Standards:- Technology,Relationships, Business-model

You must have 80 percent of the capabilitiesyou need to match competitors Standards



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Strategy 4: Invade AdjacentMarkets Make or Buy?

1. It is easier to meet the standards ofcompetition if you buy an existing player

2. Adjacent acquisitions must remain as aseparate enterprise

3. Integrate Management Control (systems,technology)

4. Inter-transfer of management talent,knowledge and capability are important

Strategy 5: Acquire new


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Strategy 5: Acquire newBusiness

No core advantage to bring in

Investors mind-set vs. Managers mind-set

Value unlocking via operationalimprovements

Invest in Management/Leadership

Premium = Combined value > stand alone


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Which is easier: Big acquisitions or small firms?


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4. Considerations, Risks

and Pitfalls

www.myCNI.com.my www.OOBEY.com

Types of M&A Deals vs. Considerations
http://www.mycni.com.my/http://www.oobey.com/http://www.oobey.com/http://www.mycni.com.my/


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yp

Overcapacity Product/Market

Consolidation

Transformation/Convergence

Roll-up Acquire

products/market

Strategic

Growth Bet

Size

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large

Running a winning M&A shop, McKinsey



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yp

Overcapacity

Size

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large


Reduce industrycapacityControl PricingSimilar ProductOfferings

Pay for Cost synergies



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yp

Roll-upSize

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large


Transfer Core Strengthto targetPay for lower operatingcost of targetIncrease revenue thru

broad strength



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Product/Market

Consolidation

Size

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large


Economies ofScaleConsolidateback officeExpand Market

presencePay for Growth,Channels



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Acquire

products/market

Size

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large


Expand marketofferingExpandGeographicreachPay for Growth,ChannelsRevenuesynergies



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Transformation/Convergence

Size

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large


Transform IndustryCreate new ValuePropositionPay for New Markets,New Capabilities



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Strategic

Growth Bet

Size

(

Relative)

Share Gain

(Expansion)

Adjacent

(Transformative)

New Business

(Transformative)

Small

Large

Adapted: Running a winning M&A shop, McKinsey

Skill transfer into newbusinessPay for High Riskoptions, ability to act innew market space

Three-Stage Process for Evaluating M&A deals


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1. Strategy Approval

2. Approval-to-Negotiate

3. Deal Approval

1. Business Dev +Business Unit

2. Worth of Target?3. Attractiveness of Target

vs. Others

4. Target compatible withStrategy?

5. Support from Acquirer?6. Integration possibilities?




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3. Deal Approval

1. Price range2. Initial Due Diligence3. Vision for incorporation4. Key Synergies5. Nonbinding Term

Sheet/LOI6. Negotiation Roadmap7. Process to Close




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3. Deal Approval

1. Answering KeyQuestions

2. Debating Valuations3. Aiming for Integration4. Dealing with Execution

Risks


Considerations, Risks and Pitfalls


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1. Global footprint vs. Local Presence

2. Anti-trust and Regulatory permissions

3. M&A Accounting Standards

4. Fair Value definition in financial reporting= Exit price

5. Acquirer and Target having different Risk

Tolerances6. Public (or Public-hopeful) companies

need to consider EPS after acquisition

Considerations, Risks and


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,Pitfalls7. Synergies and Improvements need to realized

as quickly and efficiently as possible

8. Combined Management capability to deliverimproved performance

9. First 100 days post-acquisition blueprint

10. Culture management

11. Staff Poaching from Competitors (and non-competitors)

12. Customer Poaching from Competitors


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Why do Acquisitions fail?

Consideration: Alternative Deals


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to M&AWhen companies are unwilling to sell or

acquisition premiums are too high,

alliances are the next best thing to a

merger. In other cases, they are actually

preferable to M&A

David Hernst, Principal, McKinseys Washington, DC


Consideration: Alternative Deals to M&A


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Consideration: Alternative Deals to M&A

JointVenture

Unite business units

Problem with shared ownership

New Product Lines

Cost Reductions

Share risk, Share Cost in new markets, R&DBuy-out clause

AlliancesReduce non-core or commoditizing parts

Outsourcing, OffshoringHelp supplier gain Scale

Enter Complementary business


End Note for M&A


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End Note for M&A

Go where the money is...

then marry for love

F. Scott Fitzgerald, Author



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Timothy Kiessling, PhDHead of Strategy Department

Associate Professor of Strateg and International B siness

Introduction Strategic M&A

kone germany strategy

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