Mergers and Acquisitions


Regardless of what form a business takes—be it a sole proprietorship, partnership, or a corporation—the chances are reasonably good that its form will evolve over time. Companies of all sizes and types achieve a variety of objectives by merging, dividing, and restructuring. The terms most often used to describe all of this activity are mergers, acquisitions, and leveraged buyouts. The difference between a merger and an acquisition is fairly technical, having to do with how the financial transaction is structured. Basically, in a merger, two or more companies combine to create a new company by pooling their interests. In an acquisition, one company buys another company (or parts of another company) and emerges as the controlling corporation. The flip side of an acquisition is a divestiture, in which one company sells a portion of its business to another company. In leveraged buyouts one or more individuals purchase the company (or a division of the company) with borrowed funds, using the assets of the company they’re buying to secure (or guarantee repayment of) the loan. The loans are then repaid out of the company’s earnings, through the sale of assets, or with stock. Leveraged buyouts do not always work.

Mergers and acquisitions represent relatively radical ways in which companies are combined. On a more modest scale, businesses often join forces in alliances to accomplish specific purpose. In a joint venture, two or more companies combine forces to work on a project. The joint venture may be dissolved fairly quickly if the project is limited in scope, or it may endure for many years.

A consortium is similar to a joint venture, but it involves the combined efforts of several companies. Cooperatives also serve as a vehicle for joint activities. In a cooperative, a group of people or small companies with common goals work collectively to obtain greater bargaining power and to benefit from economies of scale. Like large companies, these cooperatives can buy and sell things in quantity; but instead of distributing a share of the profits to stockholders, cooperatives divide all profits among their members.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Everything is Tentative


It’s easy to imagine that building a new product is like building a house—first the foundation, then the frame, then the first floor, and so on. Unfortunately, product aspects are rarely locked in that way. Occasionally they are, as when a technical process dominates development, or when a semifinished product is acquired from someone else, or when legal or industry requirements exist.

We usually assume everything is tentative, even up through marketing. Form can usually be changed, and so can costs, packaging, positioning, and service contracts. So can the marketing date and the reactions of government regulators. So can customer attitudes, as companies with long development times have discovered.

This means two long-held beliefs in new product work are actually untrue. One is that everything should be keyed to a single Go/No Go decision. Granted, one decision can be

Decisive—at times, for example, when a firm must invest millions of dollars in one large facility or when a firm acquires a license that commits it to major financial outlays. But many firms are finding ways to avoid such commitments, for example, by having another supplier produce the product for a while before making a facilities commitment, or by negotiating a tentative license, or by asking probable customers to join a consortium to ensure the volume needed to build the facility.

The other untrue truism is that financial analysis should be done as early as possible to avoid wasting money on poor projects. This philosophy leads firms to make complex financial analyses shortly after early concept testing, although the numbers are inadequate.

Still another tentative matter is the marketing date. Marketing actually begins very early in the development process—for example, when purchasing agents are asked in a concept test whether they think their firm would be interested in a new item. Rollouts are now so common it is hard to tell when all-out marketing begins.

Often no one pulls a switch and marketing instantly begins. We more often sneak up on it, which clearly affects the evaluation system.

What results in some cases is a sort of a rolling evaluation. The project is being assessed continuously, figures are penciled in, premature closure is avoided, and participants avoid mind-sets of good and bad.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight