Professional Documents
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Chapter 4 Developing Business & Acq Plans
Chapter 4 Developing Business & Acq Plans
Part I: M&A Part II: M&A Process Part III: M&A Part IV: Deal Part V: Alternative
Environment Valuation and Structuring and Business and
Modeling Financing Restructuring
Strategies
Ch. 1: Motivations for Ch. 4: Business and Ch. 7: Discounted Ch. 11: Payment and Ch. 15: Business
M&A Acquisition Plans Cash Flow Valuation Legal Considerations Alliances
Ch. 2: Regulatory Ch. 5: Search through Ch. 8: Relative Ch. 12: Accounting & Ch. 16: Divestitures,
Considerations Closing Activities Valuation Tax Considerations Spin-Offs, Split-Offs,
Methodologies and Equity Carve-Outs
Ch. 3: Takeover Ch. 6: M&A Ch. 9: Financial Ch. 13: Financing the Ch. 17: Bankruptcy
Tactics, Defenses, and Postclosing Integration Modeling Basics Deal and Liquidation
Corporate Governance
• Industry/market definition
• External analysis (customers, current competitors,
potential entrants, substitute products, and suppliers)
• Internal analysis (strengths and weaknesses as
compared to the competition)
• Opportunities/threats (from external and internal
analyses)
• Business vision/mission
• Business Strategies (cost/price, differentiation, focus,
or some combination)
– Which of these generic business strategies best
enables the firm to achieve its vision/mission and
objectives?
Phase 1: Business Plan
• Industry/market definition
• External analysis (customers, current competitors, potential
entrants, substitute products, and suppliers)
• Internal analysis (strengths and weaknesses as compared to the
competition)
• Opportunities/threats (from external and internal analyses)
• Business vision/mission
• Business Strategies (cost, differentiation, focus, or some
combination)
• Implementation strategy (selected from a range of options)
– Solo ventures or “go it alone”
– Merger or acquisition
– Alliances (including JVs, partnerships, and licensing)
– Minority investments and
– Asset swaps
Application
1. Discuss how you would use information
obtained from the external, internal, and
opportunities/threats identification analyses
conducted during the business planning
process to select an appropriate business
strategy. Be specific.
2. Discuss how you would select the appropriate
implementation strategy. Be specific.
(Hint: Consider the resources—broadly
defined--required/currently available to exploit
potential opportunities and threats.)
Phase 2: Acquisition Plan (How to
implement the acquisition)
• Plan objectives
(support the realization
of key business plan
objectives)
– How will the
acquired firm enable
the acquiring firm to
better realize its
vision/mission and
business plan
objectives?
Examples of Linkages Between Business and Acquisition Plan Objectives
Business Plan Objective Acquisition Plan Objective
Financial: The firm will Financial returns: The target firm should have
Achieve rates of return that will equal or exceed its cost of A minimum return on assets of x%
equity or capital by 20?? A debt/total capital ratio ≤ y%
Maintain a debt/total capital ratio of x% Unencumbered assets of $z million
Size: The firm will Size: The target firm should be at least $x million in revenue
Be the number one or two market share leader by 20??
Achieve revenue of $x million by 20??
Growth: The firm will achieve through 20?? annual average Growth: The target firm should
Revenue growth of x% Have annual revenue, earnings, and operating cash-flow
Earnings per share growth of y% growth of at least x%, y%, an z%
Operating cash-flow growth of z% Provide new products and markets of x% by 20??
Possess excess annual production capacity of x million units
Diversification: The firm will reduce earnings variability by x%. Diversification: The target firm’s earnings should be largely
uncorrelated with the acquirer’s earnings.
Flexibility: Achieve flexibility in manufacturing and design. Flexibility: Target should use flexible manufacturing techniques.
Technology: The firm will be recognized by its customers as the Technology: The target firm should possess important patents,
industry’s technology leader. copyrights, and other forms of intellectual property.
Quality: The firm will be recognized by its customers as the Quality: The target firm’s product defects must be <x per million
industry’s quality leader. units manufactured.
Service: The firm will be recognized by its customers as the Warranty record: The target firm’s customer claims per million
industry’s service leader. units sold should be not greater than x.
Cost: The firm will be recognized by its customers as the industry’s Labor costs: The target firm should be nonunion and not subject to
low-cost provider. significant government regulation.
Innovation: The firm will be recognized by its customers as the R&D capabilities: The target firm should have introduced at least x
industry’s innovation leader. new products in the last 18 months.
Phase 2: Acquisition Plan