Exam 7: Acquisition and Restructuring Strategies

The ____ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions.

Research has shown that the more different the acquired firm is in terms of competencies and resources than the acquiring firm, the more likely the acquisition is to be successful

Case Scenario 1: Syco Inc. (SI). Syco, Inc. (SI) was founded the late 1800s and grew through acquisition from being primarily a large discount retailer into a highly diversified firm. Beyond retailing (still SI's dominant business), by the middle of the 1990s its lines of business included significant market positions in insurance, consumer credit cards, stock brokerage, commercial and residential real estate brokerage, and an online Internet portal. Each of the non-retail businesses was average in its relative industry performance. Consistent with the decentralized structure at SI and arms-length corporate oversight, each of these businesses was also rapidly developing their own unique brands and customer following. However, within a short period of time it became apparent that the retail business was failing. SI's vast mall-based department store holdings were suffering from deferred maintenance and merchandising that did not appear to be popular with its once large consumer base. At the same time, highly efficient and focused low-cost competitors like Wal-Mart were beginning to take significant market share from SI. On the verge of bankruptcy by early 2000, SI's management chose to sell off its insurance, real estate and stock brokerage units; it also spun off its credit card and portal businesses in separate public offerings. -(Refer to Case Scenario 1) Why do you suppose SI entered the non-retail businesses through acquisition? Is this a cheaper route than starting up these businesses from scratch?

Which of the following is NOT one of the three main restructuring strategies?

A merger is defined as a transaction in which one firm purchases controlling interest in another firm.

Compared with downsizing, ____ has (have) a more positive effect on firm performance.

When the target firm's managers oppose an acquisition, it is referred to as a(an)

Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms.

Acquisitions can become a substitute for innovation in some firms and trigger future rounds of acquisitions.

The term "leverage" in leveraged buyouts refers to the

SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a/an

A leveraged buyout by a third party is often the result of managerial mistakes or management that has operated in its own self-interest rather than the firm's interest.

Why have acquisitions been a popular strategy in recent years?

When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than strategic controls.

Wilberforce Press is a small book publishing firm in Iowa that has been owned by the same family since 1895. It is being purchased by Ozarka Publishing, another family-run business in Nebraska, which has been a specialty publisher for 77 years. Each company is known for its unique culture passed down from its founders. Executives and employees in both firms have "grown up" with their companies. Since both these companies have a long, stable history in highly related industries, this acquisition has a high probability of success.

Case Scenario 3: Barracuda Inc. Barracuda Inc. has diversified beyond its early base as a lamp fixture manufacturer into multiple hardware and plumbing fixture products that it sells to professionals (i.e., plumbers and electricians) and through the large volume do-it-yourself (DIY) stores like The Home Depot and Lowe's. While this successful growth has been achieved primarily through acquisition, the company tends to let the acquired businesses run independently. It has done so by looking to fragmented industries to acquire small firms with efficient operations and good management teams. It then grows these businesses through a combination of internal cash flow and debt, and directs new sales to the professional and DIY channels. Barracuda has been particularly successful in the faucet segment, which it practically reinvented though such technological innovations as the washerless faucet, and marketing innovations like branding and good-better-best merchandising. Barracuda has leveraged this merchandising strategy across its businesses and, coupled with the explosive growth of the DIY channel, is spectacularly profitable with a net profit after tax (NPAT) of 18%. The firm's management is looking to broaden its revenue base and has identified the home furnishings business as sharing many characteristics with faucets, prior to Barracuda's entry into faucets. It plans to enter this industry through large-scale acquisitions. The landscape of the U.S. home furnishings manufacturing industry consists of many players, none with controlling share, and serious issues of overcapacity. There are presently 2500 home furnishings firms, and only 600 of those have over 15 employees. Average NPAT is between 4 and 5%, which also reflects the fact that few firms have good managers. While the industry is still primarily comprised of single-business family-run firms, which manufacture furniture domestically, imports are increasing at a fairly rapid rate. Some of the European imports are leaders in contemporary design. Relatively large established firms are also diversifying into the home furnishings industry via acquisition. Supplier firms to the home furnishings industry are in relatively concentrated industries (like lumber, steel, and textiles), and therefore typically offer fewer accommodations to the small furniture manufacturers. Retailers, the intermediate customer of the home furnishings industry, are becoming increasingly concentrated and the few large, successful furniture companies actually have their own stores or have dedicated showrooms in the larger department stores. Customers have many products to choose from, at many different price points, and few home furnishing products beyond those of the larger companies have established brands. Also, customers can switch easily among high and low-priced furniture and other discretionary expenditures (spanning plasma TVs to the choice of postponing any furniture purchase entirely). -(Refer to Case Scenario 3) Why would Barracuda consider acquisition as its preferred mode of entry into furniture?

The use of high levels of debt in acquisitions has contributed to

Research shows that about ____ percent of mergers and acquisitions are successful.

Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm.

When managers become overly focused on making acquisitions, it is