Strategic considerations in M&As

Questions to consider before M&As:

1. What's the firm's competitive positions? -- strategic benefits: SWOT and Porter-5 forces.
2. What's the firm's resources? -- capabilities, core competencies, sustainable competitive advantages
3. What are the target firm's complementary resources?
4. What are the key impediments to combining these resources through contracting?
5. Is a merger or an acquisition really necessary?
6. Can the merit of the acquisition be clearly communicated to both target and acquirer shareholders?
7. What are regulators likely reactions?

Common M&A strategies: merket dominance drive, overcapacity consolidation, geographic roll-ups, product extension & geographic extension, acquisition of technology and R&D capabilities, industry convergence--new industry evolution.

Can M&As destroy wealth? Yes, if two critical problems exist at the acquiring firm:

• Agency problems (managers act was not in the best of shareholders interests, intend to destroy shareholders value): empire building, entrenchment, free cash flow (over-investment).
• Managerial hubris (managers act not to do bad things): overpayment (overconfidence result in high premium prices); over-expansion; optimistic synergy forecast (not reflect the reality).