Transcript A CASE of a MERGER and ACQUISITION MEGA BLIND SPOT

A CASE of a MERGER
and ACQUISITION
MEGA BLIND SPOT
for the ACADEMY OF MARKETING STUDIES
Dr. J.D. Williams
Kutztown University
ABSTRACT
 M&A mania-- The world has seemed fixated on
growth through M&A as evidenced by the
thousands of mergers that have taken place over
this past decade.
 This paper has uncovered a flaw in the M&A
process that has blinded the financial and
managerial sectors.
 While determining the M&A cost-benefits of the
joint relationship, the role of marketing has
been diffused or just left out.
INTRODUCTION & PURPOSE
 Total worldwide value of M&As topped
$2.7 trillion in 2005 [M&A Blind Spot: Ettenson & Knowles, 2007]
 Consider the potential losses if only 20%
of the M&As were conducted without
marketing due diligence [Ettenson & Knowles]
 Include marketing analysis into the
traditional M&A models
INTRODUCTION & PURPOSE (cont.)
MARKETING  Fresh approach for financial M&A portfolio
managers, strategic managers, & asset managers
 New concept ushers in potentially lucrative &
holistic application assessment for the corporate &
banking industries
 Will likely justify itself as highly cost effective tool &
potentially offer increased typical R.O.I.
LITERATURE REVIEW
M&As- Cartwright, Susan; Schoenberg, Richard (2006). Thirty Years of Mergers and Acquisitions Research: Recent Advances and
Future Opportunities. British Journal of Management.
- DePamphilis, Donald (2008). Mergers, Acquisitions, & Other Restructuring Activities. New York: Elsevier, Academic Press.
- Ettenson, Richard & Jonathan Knowles (June 16-17, 2007). M&A Blind Spot: When Negotiating a Merger, Leave a Seat at the
Table for a Marketing Expert. Wall Street Journal.
- Harwood, I. A. (2006). Confidentiality Constraints within Mergers and Acquisitions: gaining insights through a 'bubble' metaphor.
British Journal of Management.
- Finklestein, Sydney (2007). Cross Border Mergers and Acquisitions. Dartmouth College.
- King, D. R.; Slotegraaf, R.; Kesner, I. (2008). Performance Implications of Firm Resource Interactions in the Acquisition of R&Dintensive Firms. Organization Science.
- King, D. R., D. R. Dalton, C. M. Daily, & J. G. Covin, (2004). Meta-Analyses of Post-Acquisition Performance: Indications of
Unidentified Moderators. Strategic Management Journal.
- Lien, Kathy (2005). Mergers And Acquisitions - Another Tool For Traders. Investopedia.
- Maddigan, Ruth; Zaima, Janis (1985). The Profitability of Vertical Integration. Managerial and Decision Economics.
- Mergers and Acquisitions Lead to Long-Term Management Turmoil. Newswise.
- Platt, Gordon (2007). Cross-Border Mergers Show Rising Trend As Global Economy Expands.
- Rosenbaum, Joshua; Joshua Pearl (2009). Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions.
- Straub, Thomas (2007). Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis.
- Vermeulen, Freek (2005). How Acquisitions can Revitalize Companies. MIT Sloan Management Review.
- Zax, Igor (2009). Distressed M&A: Some Strategic and Financial Trends and Considerations.
- Zollo, Maurizio & D. Meier (2008). What is M&A Performance? The Academy of Management Perspectives. V. 22 No. 2. pp. 5577.
LITERATURE REVIEW
Marketing- Anderson, Carol and Julian W. Vincze (2004). Strategic Marketing Management
- Berry, Leonard L. (April, 2001). Harvard Business Review.
- Burghard, Ed and Lisa Mackay (Dec. 2004). Marketing Management.
- Cross, Robert G. and Ashlosh Dixit (2005). Customer-Centric Pricing: The
Surprising Secret for Profitability. Business Horizons.
- Keller, Kevin Lane and Sanjay Sood (Fall 2003). Brand Equity Dilution. MIT Sloan
Management Review.
- Kotler, Philip (1972). A Generic Concept of Marketing. Journal of Marketing.
- Kotler, Philip (Aug. 1997). The Future of Marketing. Cambridge Marketing College.
- Kotler, Philip (2004). A Framework for Marketing Management. Prentice-Hall.
- Leon, George H. (Jan./Feb. 2005). You Choose, You Lose. Marketing
Management.
- Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining
Superior – Performance.
- Reece, Shelly (Jan.-Feb., 1996). The Very Model of a Modern Marketing Plan.
Marketing Tools.
- Roegner, Eric V., Michael V. Main, and Craig C. Zawada. (Jan./Feb. 2005).
Pricing gets Creative. Marketing Management.
- Walker, John S. (white paper, 2007). The Marketing Cure to the M&A Blind Spot.
Ambassador Financial Group, Inc.
M&A DECISION
PROCESS & MARKETING
 Business combinations, formed through M&A,
bring together both intangible and tangible
resources.
- Marketing offers both
 Operating synergies may take a variety of
forms, whether the merger was vertical or
horizontal.
- Most horizontal mergers should include
marketing components
Reasons why M&As Fail
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Biased canopy of knowledge when they focused too
much on the financial, accounting and
management aspects of a deal and neglect the
important marketing particulars (Walker, 2007)
Poor results from execution timing relative to market
valuation.
To acquire a company, one has to pay more than its
worth (premium, 10 - 15 percent above market value)
(Dalton)
A critical question would be what percentage of M&A
creates shareholder value?
90%
70 %
40%
20%
It turns out that M&A create value only about
20% of the time
Applying Marketing to M&A
 Qualitative assesses degrees of synergy realizations, of integration
process efficiency, and of strategic gap reduction
Over 50% of marketing is consider soft-side performance
criteria (i.e. perceptions, desires, (mind-share, heart-share),
dislikes & personal values)
 Objective measurement methodologies (e.g., financial and
accounting figures) organizational level of analysis (e.g.,
improvement of the firm’s competitive position)
Marketing also shares quantitative components (i.e. product
production costs, break-even analysis, pricing strategies,
logistic costs, & promotion cost/benefit analysis)
 Process level (e.g., quality of the post acquisition plans, magnitude
of premium paid, etc.) (Zollo & Meier, 2008)
Marketing offers MARKET SHARE for a process or transition
level contributor
TABLE 3A - 10 Most Active Industries by Number of Transactions in 2005
Rank Industry
No. of Deals % of all M&A Deals
1
Business services
1,295
17.7%
2
Software
647
8.9%
3
Real estate firms
406
5.6%
4
Durable goods wholesaling
256
3.6%
5
Investment & commodities firms 246
3.4%
6
Health services
245
3.4%
7
Measuring, medical & photography 221
3.0%
8
Oil & gas
210
2.9%
9
Insurance
207
2.8%
10
Hotels & casinos
183
2.5% .
Marketing functions
TABLE 3B - 10 Most Active Industries by Dollar Volume in 2005
Rank
Industry
Value ($billions) % of Total M&A Value
1 Telecommunications
95.5
9.7%
2 Metal & metal products
73.5
7.5%
3 Oil and gas
67.4
6.9%
4 Real estate firms
62.6
6.4%
5 Business services
52.7
5.4%
6 Software
49.4
5.0%
7 Investment & commodity firms
42.4
4.3%
8 Gen. Merchandise & apparel retailing 40.2
4.1%
9 Hotels & casinos
40.1
4.1%
10
Insurance
32.4
3.3%
Adopted from Mergers & Acquisitions, February 2006, p.40
Marketing functions
Marketing Elements for M&A Analysis
 Strategic Planning
 External Market Assessment of Opportunities and

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
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

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Threats
Internal Audit of Applied Resources
Target Market Profiling
Designing the Marketing Mix Element- Product or
Service Strategy
Designing the Marketing Mix Element- - Place/Logistics
Strategy
Designing the Marketing Mix Element- Promotion Mix
Strategy
Designing the Marketing Mix Element- Pricing Strategy
Designing the Monitor and Control Systems
Marketing Commercialization
Market Expansion, Retraction, and New Niche Market
Selection
TABLE 5 - Model of M&A Marketing Expectations
Weighted
Factor (1-5)
5
3
2
3
2
5
2
4
2
4
2
3
Marketing
Element
Marketing Leadership
(XML)
Marketing Strategy (XMS)
External Market Assessment (XMA)
Internal Audit of Resources (XIA)
Target Market Profiling (XTM)
Product or Service Strategies (XPS)
Place/Logistical Strategy (XL)
Promotion Mix Planning (XPM)
Pricing Strategies (XP)
Monitor & Control Systems (XMC)
MKT. Commercialization (XMC)
Market Expansion, Retraction, &
Niche Market Selection (XNMS)
( poor) 1
Effective/ Acceptance Ranking
2 3 4 5 ( excellent)
n
n
n
.
n
n
n
n
n
n
.n
n
n
Weighted Value of a firm’s M&A Marketing Expectations = YME,
where ‘n’ represents the selected evaluation of the potential
merged firms marketing component position.
YME = 5 (XML)n + 3(XMS)n + 2(XMA)n + 3(XIA)n +
2(XTM)n + 5(XPS)n + 2(XL)n + 4(XPM)n + 2(XP)n
+4(XMC)n + 2(XMC)n + 3(XNMS)n
Establishing acceptable to unacceptable range
185 - 150
highly acceptable
149 - 130
acceptable
129 – 100
marginally acceptable
99 – 70
highly questionable
69 – 0
unacceptable
CONCLUSION
 Typically, the pre-merger discovery process
limits itself to verifying the potential of hard
assets such as property, equipment, patents and
existing service contracts.
 A marketer would also look at ‘relational’ assets
that drive cash flow, such as corporate
reputation, goodwill and the brand(s)
itself/themselves.
(Ettenson, 2007)