Exam II Review: Transaction Costs, Vertical Integration, Diversification
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
