Order Home Entertainment Retail Industry

Order Home Entertainment Retail Industry
• Through a vertical acquisition, the newly formed firm controls
additional parts of the value chain, which leads to increased market
power.
Related Acquisitions
• Acquiring a firm in a highly related industry is called a related
acquisition.
• Through a related acquisition, firms seek to create value through the
synergy that can be generated by integrating resources and
capabilities.
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Overcoming Entry Barriers
• Barriers to entry are factors associated with a market, or the firms
currently operating in it, that increase the expense and difficulty new
firms encounter when trying to enter a particular market.
• Examples: Economies of scale and customer loyalty
• The higher the barriers to entry, the greater the probability that a firm
will acquire an existing firm to overcome them.
Cross-Border Acquisitions
• Acquisitions made between companies with headquarters in
different countries are called cross-border acquisitions.
• Cross-border acquisitions can be difficult to implement due to
various obstacles and differences in foreign cultures.
BAT acquired
Reynold American (2016)
Order Home Entertainment Retail Industry
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Cost of New Product Development
and Increased Speed to Market (1/2)
Internal product development is often perceived as
a high-risk activity. Many firms are not able to achieve adequate returns
compared to the amount of capital they invest to
develop and commercialize the product.
Quick entry is a key if opportunity is perishable
Astrazeneca acquired Alexion Pharma (rare diseases drugs)
for $39bn
10 Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. CB7 | CH3
Cost of New Product Development
and Increased Speed to Market (2/2)
• An acquisition strategy allows a firm to gain
access to new products and to current products
that are new to it.
• Compared with internal product development
processes, acquisitions provide:
• More predictable returns
• This is because the performance of the acquired firm’s products
can be assessed prior to completing the acquisition.
• Faster market entry
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Increased Diversification
• It is relatively uncommon for a firm to develop new
products internally to diversify its product lines.
• It is difficult for companies to develop products that differ from
the current lines for markets in which they lack experience.
• Acquisition strategies can be used to support the use of
both related and unrelated diversification strategies.
Order Home Entertainment Retail Industry
• The more related the acquired firm is to the acquiring firm, the
greater is the probability that the acquisition will be successful.
• Thus, horizontal acquisitions and related acquisitions tend to
contribute more to the firm’s strategic competitiveness than do
acquisitions of companies operating in product markets that differ
from those in which the acquiring firm competes.
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Reshaping the Firm’s Competitive Scope
• To reduce the negative effect of an intense
rivalry on financial performance, firms may use
acquisitions to lessen their product and/or
market dependencies.
• Reducing a company’s dependence on specific
products or markets shapes the firm’s competitive
scope.
13 Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly acce ssible website, in whole or in part. CB7 | CH3
Problems in Achieving Acquisition Success

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