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PROBLEMS IN M & A SUCCESS

1. Integration difficulties2. Evaluation of target

3. Lack of synergy benefits4. Excessive diversification

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Strategic facilitators for M & A

growth in India

1. Macro environment: eg. GDP etc.

2. Progressive regulatory policies: eg. FDI limits

3. Pursuit for global expansion

4. Recognition of importance of state-of-the-arttechnology

5. Derisking the business model (to beat the business

cycle variations)

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CONTRACTS

STRATEGICALLIANCES

JOINTVENTURES

MERGERS &ACQUISITIONS

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JOINT VENTURES AND STRATEGIC

ALLIANCES

: As an alternative to Mergers and Acquisitions

If the gains that the participants hoped toachieve could be realized through JV or SA

only!

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CONTRACTUAL AGREEMENTS

Eg. Contract between a company and its supplier:

When will a contract suffice and when not?

Eg. When a product requires a specificdevelopment commitment;

when a buyer provides funding for a

development;

eg. Biotechnology and pharmaceutical firms

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JOINT VENTURES

In a JV, two or more companies combine certainassets and work toward jointly achieving abusiness objective.

Usually, the time period of this combination isdefined and limited in duration.

In a JV, the companies involved maintain their ownseparate business operations and combine to exist

apart as they did before the joint venture. Thisventure is then formally created as a businessentity such as a separate corporation or

partnership.

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MOTIVES FOR JOINT VENTURES

1. Enhance R & D capabilities

2. Gain access to key supplies

3. Enhance distribution systems

4. Gain access to foreign market

Eg. Renault has done JVs with Nissan motors andMahindra & Mahindra

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Horizontal and vertical Joint Ventures

Potential Problems with JVs:1. Disagreements between the venture partners

2. Lack of full commitment

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STRATEGIC ALLIANCES

The relationship and the agreement are lessformal than in a JV

In a JV, a separate entity is created, whereasin a SA, the agreement and the relationshipare less formal.

Eg. Common in Airline and computer industries

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Prime reason to form Strategic Alliances

Enhancing R & DEg. Pharmaceutical companies can gain access to

technology provided by biotech firms that may notbe available to the drug companies.

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Governance of SA

In case of an acquisition, the governance processis hierarchical such that the acquirer pays for andreceives the right to control the target. It

governs the target in a manner that facilitatesgrowth of the wealth of the acquirersshareholders.

The governance of SA is bilateral and is

determined by the agreement the alliancepartners enters into as well as by factors such asthe non-legal commitment of the alliancepartners to make the alliance succeed.

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What determines the Success of

Strategic Alliances?

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What determines the Success of

Strategic Alliances?

A study shows that the firms that had moreexperience with alliances were more likely tobe successful in future alliances i.e., there is a

learning curve and companies do better atalliances the more they do them.

The companies that had a dedicated alliancefunction, such as a department dedicated tooverseeing alliances that the companyentered into, were more likely to besuccessful with their alliances. Eg. HP, Eli Lilly

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