Mergers and Acquisitions (M&As), Takeovers, Joint Ventures, Strategic Alliances, and Franchising
- Imagine you own a successful local café.
- You dream of expanding, but how do you choose the right path?
- Should you merge with another café, acquire a competitor, or perhaps franchise your brand?
This section explores five key methods of external growth: mergers and acquisitions (M&As), takeovers, joint ventures, strategic alliances, and franchising.
Mergers and Acquisitions (M&As)
- Mergers: Two companies combine to form a new entity.
- Acquisitions: One company purchases another, which continues to operate under the buyer's control.
Disney's acquisition of Pixar combined Disney's distribution power with Pixar's creative expertise.
Risks of M&As
- Cultural Clashes: Differences in company cultures can hinder integration.
- High Costs: M&As often involve significant financial investment.
- Regulatory Challenges: Governments may block deals to prevent monopolies.
When evaluating M&As, consider both the financial and cultural compatibility of the companies involved.
Takeovers
Takeover
A takeover occurs when one company acquires another without the target company's consent.
This is often referred to as a hostile takeover.Example
Kraft Foods' takeover of Cadbury in 2010 was initially resisted by Cadbury's management.
Advantages of Takeovers
- Rapid Growth: Immediate expansion of market share and resources.
- Control of Valuable Assets: Access to patents, technology, or distribution networks.
- Elimination of Competition: Reduces the number of competitors in the market.
Risks of Takeovers
- Resistance from Target Company: Hostile takeovers can damage relationships and morale.
- Integration Challenges: Aligning operations and cultures can be difficult.
- Financial Burden: High costs and potential debt from financing the takeover.
Takeovers are often more aggressive than mergers, focusing on gaining control rather than mutual agreement.
Self review- What are two potential risks of a hostile takeover?
- How might a company mitigate these risks?
Joint Ventures
Joint venture
A joint venture involves two or more companies creating a new, separate entity to pursue a specific project or goal.
Sony and Ericsson formed Sony Ericsson to develop mobile phones.
Advantages of Joint Ventures
- Shared Risks and Costs: Partners split financial and operational responsibilities.
- Access to Local Expertise: Useful for entering unfamiliar markets.
- Flexibility: Partners can dissolve the venture after achieving their goals.
Toyota and Panasonic collaborated to develop electric vehicle batteries, combining Toyota's automotive expertise with Panasonic's battery technology.
Risks of Joint Ventures
- Conflicting Objectives: Partners may disagree on priorities or strategies.
- Profit Sharing: Earnings must be divided, reducing individual gains.
