ALOYSIUS INSTITUTE OF MANAGEMENT AND

INFORMATION TECHNOLOGY
MANGALORE

Strategic Management

Presentation Report
“Corporate Restructuring Strategies and its Reliability”

SUBMITTED TO:
Santhosh Shanbhag
Asst. Professor
AIMIT

SUBMITTED TO:
Group No: o4

Karthik K.G.
Mallikarjun Choncholli
Vinayak Tupsundar
Ramya
Ashish Bhat

ACQUISITION
An acquisition is a strategy through which one firm buys a controlling, or 100 percent interest in
another firm with the intent of using a core competence more effectively by making the acquired
firm a subsidiary business within its portfolio. Usually, the management of the acquired firm
reports to its counterpart in the acquiring firm.

Reasons for Acquisition

INCREASED MARKET POWER

A primary reason for the acquisition is to achieve greater market power. Market power exists
when a firm is able to sell its goods or services above competitive levels or when the costs of its
primary or support activities are below competitors. Many companies may have core
competencies, but lack the size to exercise their resources and capabilities to compete in the
market place. Market power is usually derived from the size of the firm and its resources and
capabilities to compete in the market place. Therefore most acquisitions are designed to achieve
greater market power entail buying a competitor, a supplier, a distributor or a business in a
highly related industry to allow exercise of a core competence and gain competitive advantage in
the acquiring firm’s primary market.

OVERCOMING THE ENTRY BARRIERS

Barriers to entry are factors associated with the market or a firm operating currently in it that
increase the expense and difficulty new ventures face when trying to enter a particular market.
Although an acquisition can be expensive, it does provide the new entrant with immediate
market access.

COST OF NEW PRODUCT DEVELOPMENT

Developing a new product internally and successfully introducing them into the market often
requires significant investments of a firm’s resources, including time, making it difficult to earn a
profitable return quickly. Acquisitions are another means through which a firm can gain access
to new products that are new to the firm. Compared to internal product development processes,
acquisitions provide more predictable returns and as well as faster market entry. Returns are
more predictable because the performance of the acquired firm’s products can be assessed prior
to the completing the acquisition.

INCREASED SPEED TO MARKET

As indicated previously, compared to the internal product development, acquisitions result in

more rapid market entries. Acquisitions remain the quickest route companies have to new
markets and to new capabilities. These can create advantageous market positions.

LOW RISK COMPARED TO NEW PRODUCT DEVELOPMENTS

The internal product development process can be risky. Alternatively, because an acquisition’s
outcomes can be estimated more easily and accurately compared to the outcomes of an internal
product development process, managers may view acquisitions as carrying lowering risk.

INCREASED DIVERSIFICATION

Based on the experience and insights resulting from it firms typically find it easier to develop
and introduce new products in the markets served currently by the firm. In contrast, it is harder
for the companies to develop products ones that differ from their current lines for markets in
which they lack experience. Thus, it is uncommon for the firm to develop new products
internally as a means of diversifying its product lines. Instead, a firm usually opts to use
acquisitions as a means of diversifying its product lines.

AVOID EXCESSIVE COMPETITION

The intensity of competitive rivalry in an industry characteristic that affects a firm’s profitability.
To reduce the negative effect of an intense rivalry on its financial performance, the firm may use
acquisitions as a way to restrict its dependence on a single or a few products or markets.
Reducing a company’s dependence on single product or markets alters the competitive scope for
the company.
PROBLEMS IN ACHIEVING THE ACQUISITION SUCCESS

Integration difficulties

Integration issues include those of melding two disparate corporate culture, linking different
financial and control systems, building effective working relationships (particularly when
management style differ) and resolving problems regarding the status of the newly acquired
firm’s executives.

INADEQUATE EVALUATION OF TARGET

Due diligence is a process through which a firm evaluates a target firm for acquisition. An
effective due diligence process examines hundreds of items in an areas as diverse as those of
financing the intended transactions, differences I cultures between the acquiring an target firm,
tax consequences of the transaction and actions that would be necessary to successfully meld the
two workforces. Due diligence is commonly performed by the investment bankers, accountants,
lawyers, and management consultants specializing in that activity. The failure to complete an
effective due diligence process often results in the acquiring firm paying premium.

LARGE OR EXTRAORDINARY DEBT

Use of debt has positive and negative effects. On one hand, leverage can be positive force in a
firm’s development, allowing it to take advantage of attractive expansion opportunities.
However, too much leverage can lead to negative outcomes, such as postponing or eliminating
investments (R&D) that are necessary to maintain strategic competitiveness over the long term.

TOO MUCH DIVERSIFICATION

Diversification strategies lead to strategic competiveness and above average returns. In general,
firms using the related diversification outperform those employing the unrelated diversification
strategies. At some time firms can become over diversified. The reason for the variation is that
each firm has different capabilities that are required to be successfully managing diversification.
Long term profit and innovation inside the firm diminishes.
ATTRIBUTES OF SUCCESSFUL ACQUISITIONS

 Should have complimentary assets to the acquiring firm’s core business.

 Acquisition should be friendly
 Negotiate carefully and deliberately
 Acquiring firm should be financially strong
 Maintain low to moderate debt positions after merger
 Has experience, flexible to changes
 Emphasis on innovation and R&D.