Exam II Review: Transaction Costs, Vertical Integration, Diversification

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Competitive Advantage in M&A

Most M&As do not create competitive advantage

Investment Bankers' Advice

Not solely relying on their guidance for M&A decisions

Equity Alliances

One partner holds partial ownership in the other

Irrational Exuberance

Overestimation of strategic importance leading to M&A miscalculations

Forward Vertical Integration

Owning activities in downstream industries, closer to end customers

Backward Vertical Integration

Owning activities in upstream industries, away from end customers

Fully Vertically Integrated

Participating in every stage of the industry value chain

Long-term contracts (franchising/licensing)

Partnerships based on contractual agreements

Walk-Away Price

Pre-determined limit to cease negotiations or deals

Acquisition

Purchase of one company by another for external growth

Restructuring

Reorganizing and divesting to refocus a company's core competencies

Asset Rationalization

Reorganizing assets for operational efficiency post-M&A

Shareholder Value Destruction

Result of failed M&As not realizing anticipated synergies

Post-Merger Integration

Activities following M&A deal completion like asset rationalization and acculturation

M&A Success Review

Analyzing completed acquisitions to understand success factors

Core Competence-Market Matrix

Assessing core competencies for new market leverage

Alliance Governance Decisions

Decisions related to managing and governing strategic alliances

Synergy Value

Difference between expected benefits and acquisition price

Diversification

Entering new businesses outside the existing industry value chain

Empire Building

Expanding a company's influence beyond its core business

Taper Integration

Firm is vertically integrated but relies on outside firms for supplies

Vertical Integration

Firm's ownership of production inputs or distribution channels

Vertically Disintegrated

Focusing on core stages, hiring other firms for the rest

BCG Growth-Share Matrix

Guiding restructuring decisions by Boston Consulting Group

Internal Development (DIY)

In-house growth and development within the firm

Joint Venture

Independent entity jointly owned by two or more companies

Resource Provider Integration

Integrating a resource provider based on relevancy, tradability, and closeness

Build (organic growth)

Internal growth through development within the firm

Financial Engineering

Manipulating financial structures for M&A benefits

Product-Resource Matrix

Matching resources with potential new markets using VRIO framework

Diversification Mode

Methods firms use to diversify, like alliances and M&A

External Transaction Costs

Costs between a firm and other entities, e.g., searching for suppliers

Internal Transaction Costs

Costs within a firm, e.g., monitoring employee performance

Strategic Alliances

Voluntary partnerships sharing knowledge, resources, and capabilities

Principal-agent Problems

Conflicts arising from differing interests in M&A deals

Transaction Costs

Costs associated with economic exchanges, like buying lunch


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