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BUSINESS STRATEGY
Assessing the current and potential value of the target business
means taking into account factors such as tangible and intangible assets,
notably property and intellectual property, and the expertise of its per-
sonnel and the likelihood that they will remain. Investigate the target
business s management expertise and organisational culture: the way
that the business is run and decisions are made, as well as its culture and
values. Then assess what benefits these would bring and what difficul-
ties they may cause in the integration process.
Assess what you might have to pay in order to win support from the
target company s (and your firm s) shareholders and other interested
parties. Work out who else s support you need: key managers, the
media, stockmarket analysts or whatever. All this affects the ease with
which the company can be acquired as well as the depth of long-term
support and cash that may be available for future developments, such
as a process of costly restructuring.
Due diligence
Due diligence is the process of investigating a target company in detail.
The purpose and value of due diligence are not only commercial, for
instance ensuring that the business is fully understood and that the
acquisition proceeds successfully; it is also to provide a financial and
legal audit. Due diligence involves examining the target s accounts, con-
tracts and all other commercial aspects. It provides a basis for identify-
ing and avoiding risks, ensuring accurate valuation and preparing for
post-acquisition integration, and, in particular, understanding the many
people issues that invariably determine the ease and success of the
merger.
For these reasons due diligence is often conducted in parallel with
contract negotiations, although some advisers recommend that it fol-
lows negotiation and is completed as the last stage before the deal is
executed.
Decision 4: price and structure the deal. The issue of price is
paramount. It will depend on whether it is a buyer s or a seller s market,
and it is important to make a judgment about the seller s bottom line. A
decision must also be made on the buyer s top line, which should take
into account the additional costs on top of the purchase price: for exam-
ple, fees paid to legal and any other advisers; the cost of raising capital
and financing the acquisition; tax considerations; integration costs to
realise the full potential of the acquisition; and legal completion costs.
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STRATEGIES FOR GROWTH
Once due diligence has been completed and any surprises it has
uncovered have been taken into account, contracts can be drawn up.
Decision 5: negotiate the deal. Negotiations often run alongside due
diligence, but there will be a final stage when things like warranties and
indemnities, designed to protect the acquirer against surprises not
revealed by the due diligence process, are agreed.
Post-acquisition planning and integration
Whatever precedes this stage can still be rendered worthless if the ulti-
mate purpose of the deal the successful integration of the target is not
achieved. An effective post-acquisition strategy is therefore a vital com-
ponent of a successful acquisition, and post-acquisition planning needs
to start before the deal is finalised.
Decision 6: plan early to realise the benefits of the deal. Post-
acquisition integration decisions should take into account:
the overall strategy of the business;
the culture and management styles of the two organisations;
issues of presentation, communication and understanding;
customer-focused market issues it may be a grand plan, but
how will customers, current and potential, react? Can this be
turned to the acquirer s advantage?
people management issues, in particular motivation,
empowerment and innovation;
management procedures and systems, especially for it and finance;
the need to inform shareholders.
One of the most intriguing mergers of recent years was the deal
between Germany s Daimler-Benz and America s Chrysler Corporation.
It was intriguing for many reasons, not least because initially it was far
from clear whether it was a merger between approximate equals or an
acquisition by the larger Daimler. It became clear it was in effect the
latter. It provides a valuable case study of the perils of structuring a mas-
sive corporate deal.
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BUSINESS STRATEGY
DaimlerChrysler: revenues, profits and employment, 1997
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