Mergers & Acquisitions

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From the Editor: Strategy in the Midst of Change

How do you develop strategy in a business environment characterized by rapid change and considerable uncertainty about the future? That’s a question that many executives in fast-changing industries face. The Fall 2014 issue of MIT Sloan Management Review features a special report on strategy in changing markets, with articles on creating new strategic narratives, capturing new opportunities and finding the right strategic role for a board.

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Creating More Accurate Acquisition Valuations

Deal markets can be “hot” or “cold,” and the state of the economy can bias executives’ evaluation of potential acquisitions. For instance, relying on discounted cash flow scenarios can bolster managers’ sense of confidence and create unrealistically low perceptions of uncertainty. Executives can mitigate valuation biases by having a checklist — the list tempers natural inclinations to focus on the value of growth options in “hot” markets and risk of investment in “cold” markets.

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The 2014 Richard Beckhard Memorial Prize

This year’s winning article on planned change and organizational development is “Making Mergers Work,” by Hamid Bouchikhi and John R. Kimberly. The authors examine why mergers and acquisitions so often fail to achieve the results and synergies they promise. “Our work in this field has convinced us that there is no ‘one best way’ but rather four distinct paths that can be followed to achieve identity integration: assimilation, federation, confederation and metamorphosis,” they write.

Image courtesy of Flickr user zoetnet.

Making Mergers Work

For organizations to achieve the psychological synergies required to realize economic synergies from mergers and acquisitions, executives need to attend to a more complex set of identity issues. These issues define the essence of the entity and give employees a clear answer to the question “Who are we?” and external stakeholders a clear answer to the question “Who are they?” Left unattended, these identity issues will diminish engagement and will affect the performance of the merged entity.

Image courtesy of Flickr user Electrolux Design Lab.

Should You Have a Global Strategy?

Senior executives weighing strategies appropriate for today’s global economy will hear contradictory advice. Some say you need to move quickly, before competitors, to establish a worldwide presence; others cite data showing that this approach is often less profitable. The reality is that neither approach is appropriate for every circumstance. Therefore, executives need to understand when to pursue one route and when to pursue the other.

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Avoiding Lemons in M&A Deals

Many deals will fail to generate real value for shareholders of the acquiring company, and a good number will ultimately become wealth-destroying propositions. The fundamental problem lies in two inherent features of many M&As: the acquiring company’s struggle to value the target’s resources and the need for the parties involved to agree on a price. Research identifies three ways to help: selecting an alternative ownership structure, crafting a contractual agreement and utilizing information generated by other markets.

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Showing 1-19 of 19