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A CASE of a MERGER and ACQUISITION MEGA BLIND SPOT. for the ACADEMY OF MARKETING STUDIES Dr. J.D. Williams Kutztown University. ABSTRACT. M&A mania -- The world has seemed fixated on growth through M&A as evidenced by the thousands of mergers that have taken place over this past decade.

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a case of a merger and acquisition mega blind spot

A CASE of a MERGER and ACQUISITION MEGA BLIND SPOT

forthe ACADEMY OF MARKETING STUDIES

Dr. J.D. Williams

Kutztown University

abstract
ABSTRACT
  • M&A mania-- The world has seemed fixated on growth through M&A as evidenced by the thousands of mergers that have taken place over this past decade.
  • This paper has uncovered a flaw in the M&A process that has blinded the financial and managerial sectors.
  • While determining the M&A cost-benefits of the joint relationship, the role of marketing has been diffused or just left out.
introduction purpose
INTRODUCTION & PURPOSE
  • Total worldwide value of M&As topped $2.7 trillion in 2005 [M&A Blind Spot: Ettenson & Knowles, 2007]
  • Consider the potential losses if only 20% of the M&As were conducted without marketing due diligence[Ettenson & Knowles]
  • Include marketing analysis into the traditional M&A models
introduction purpose cont
INTRODUCTION & PURPOSE (cont.)

MARKETING -

  • Fresh approach for financial M&A portfolio managers, strategic managers, & asset managers
  • New concept ushers in potentially lucrative & holistic application assessment for the corporate & banking industries
  • Will likely justify itself as highly cost effective tool & potentially offer increased typical R.O.I.
slide5

LITERATURE REVIEW

M&As-

- Cartwright, Susan; Schoenberg, Richard (2006). Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities. British Journal of Management.

- DePamphilis, Donald (2008). Mergers, Acquisitions, & Other Restructuring Activities. New York: Elsevier, Academic Press. 

- Ettenson, Richard & Jonathan Knowles (June 16-17, 2007). M&A Blind Spot: When Negotiating a Merger, Leave a Seat at the Table for a Marketing Expert. Wall Street Journal.

- Harwood, I. A. (2006). Confidentiality Constraints within Mergers and Acquisitions: gaining insights through a 'bubble' metaphor. British Journal of Management.

- Finklestein, Sydney (2007). Cross Border Mergers and Acquisitions. Dartmouth College.

- King, D. R.; Slotegraaf, R.; Kesner, I. (2008). Performance Implications of Firm Resource Interactions in the Acquisition of R&D-intensive Firms. Organization Science. 

- King, D. R., D. R. Dalton, C. M. Daily, & J. G. Covin, (2004). Meta-Analyses of Post-Acquisition Performance: Indications of Unidentified Moderators. Strategic Management Journal. 

- Lien, Kathy (2005). Mergers And Acquisitions - Another Tool For Traders. Investopedia.

- Maddigan, Ruth; Zaima, Janis (1985). The Profitability of Vertical Integration. Managerial and Decision Economics. 

- Mergers and Acquisitions Lead to Long-Term Management Turmoil. Newswise.

- Platt, Gordon (2007). Cross-Border Mergers Show Rising Trend As Global Economy Expands.

- Rosenbaum, Joshua; Joshua Pearl (2009). Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions.

- Straub, Thomas (2007). Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis. 

- Vermeulen, Freek (2005). How Acquisitions can Revitalize Companies. MIT Sloan Management Review.

- Zax, Igor (2009). Distressed M&A: Some Strategic and Financial Trends and Considerations.

- Zollo, Maurizio & D. Meier (2008). What is M&A Performance? The Academy of Management Perspectives. V. 22 No. 2. pp. 55-77.

slide6

LITERATURE REVIEW

Marketing-

- Anderson, Carol and Julian W. Vincze (2004). Strategic Marketing Management

- Berry, Leonard L. (April, 2001). Harvard Business Review.

- Burghard, Ed and Lisa Mackay (Dec. 2004). Marketing Management.

- Cross, Robert G. and Ashlosh Dixit (2005). Customer-Centric Pricing: The Surprising Secret for Profitability. Business Horizons.

- Keller, Kevin Lane and Sanjay Sood (Fall 2003). Brand Equity Dilution. MIT Sloan Management Review.

- Kotler, Philip (1972). A Generic Concept of Marketing. Journal of Marketing.

- Kotler, Philip (Aug. 1997). The Future of Marketing. Cambridge Marketing College.

- Kotler, Philip (2004). A Framework for Marketing Management. Prentice-Hall.

- Leon, George H. (Jan./Feb. 2005). You Choose, You Lose. Marketing Management.

- Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining Superior – Performance.

- Reece, Shelly (Jan.-Feb., 1996). The Very Model of a Modern Marketing Plan. Marketing Tools.

- Roegner, Eric V., Michael V. Main, and Craig C. Zawada. (Jan./Feb. 2005). Pricing gets Creative. Marketing Management.

- Walker, John S. (white paper, 2007). The Marketing Cure to the M&A Blind Spot. Ambassador Financial Group, Inc.

m a decision process marketing
M&A DECISIONPROCESS & MARKETING
  • Business combinations, formed through M&A, bring together both intangible and tangible resources.

- Marketing offers both

  • Operating synergies may take a variety of forms, whether the merger was vertical or horizontal.

- Most horizontal mergers should include marketing components

reasons why m as fail
Reasons why M&As Fail
  • Biased canopy of knowledge when they focused too much on the financial, accounting and management aspects of a deal and neglect the important marketing particulars (Walker, 2007)
  • Poor results from execution timing relative to market valuation.
  • To acquire a company, one has to pay more than its worth (premium, 10 - 15 percent above market value) (Dalton)
  • A critical question would be what percentage of M&A creates shareholder value?

90% 70 % 40% 20%

  • It turns out that M&A create value only about

20% of the time

applying marketing to m a
Applying Marketing to M&A
  • Qualitative assesses degrees of synergy realizations, of integration process efficiency, and of strategic gap reduction

Over 50% of marketing is consider soft-side performance criteria (i.e. perceptions, desires, (mind-share, heart-share), dislikes & personal values)

  • Objective measurement methodologies (e.g., financial and accounting figures) organizational level of analysis (e.g., improvement of the firm’s competitive position)

Marketing also shares quantitative components (i.e. product production costs, break-even analysis, pricing strategies, logistic costs, & promotion cost/benefit analysis)

  • Process level (e.g., quality of the post acquisition plans, magnitude of premium paid, etc.) (Zollo & Meier, 2008)

Marketing offers MARKET SHARE for a process or transition level contributor

slide10

TABLE 3A - 10 Most Active Industries by Number of Transactions in 2005

Rank Industry No. of Deals % of all M&A Deals

1Business services 1,295 17.7%

2Software 647 8.9%

3Real estate firms 406 5.6%

4 Durable goods wholesaling 256 3.6%

5Investment & commodities firms 246 3.4%

6 Health services 245 3.4%

7 Measuring, medical & photography 221 3.0%

8 Oil & gas 210 2.9%

9Insurance 207 2.8%

10Hotels & casinos 183 2.5% .

Marketing functions

slide11

TABLE 3B - 10 Most Active Industries by Dollar Volume in 2005

  • Rank Industry Value ($billions) % of Total M&A Value
  • Telecommunications 95.5 9.7%
  • Metal & metal products 73.5 7.5%
  • Oil and gas 67.4 6.9%
  • Real estate firms 62.6 6.4%
  • Business services 52.7 5.4%
  • 6 Software 49.4 5.0%
  • 7 Investment & commodity firms 42.4 4.3%
  • 8 Gen. Merchandise & apparel retailing 40.2 4.1%
  • 9 Hotels & casinos 40.1 4.1%
  • 10 Insurance 32.4 3.3%
  • Adopted from Mergers & Acquisitions, February 2006, p.40

Marketing functions

marketing elements for m a analysis
Marketing Elements for M&A Analysis
  • Strategic Planning
  • External Market Assessment of Opportunities and Threats
  • Internal Audit of Applied Resources
  • Target Market Profiling
  • Designing the Marketing Mix Element- Product or Service Strategy
  • Designing the Marketing Mix Element- - Place/Logistics Strategy
  • Designing the Marketing Mix Element- Promotion Mix Strategy
  • Designing the Marketing Mix Element- Pricing Strategy
  • Designing the Monitor and Control Systems
  • Marketing Commercialization
  • Market Expansion, Retraction, and New Niche Market Selection
slide13

TABLE 5 - Model of M&A Marketing Expectations

Weighted Marketing Effective/ Acceptance Ranking

Factor (1-5) Element ( poor) 1 2 3 4 5 ( excellent)

5 Marketing Leadership (XML) n .

3 Marketing Strategy (XMS) n

2 External Market Assessment (XMA) n

3 Internal Audit of Resources (XIA) n

2 Target Market Profiling (XTM) n

5 Product or Service Strategies (XPS) n

2 Place/Logistical Strategy (XL) n

4 Promotion Mix Planning (XPM) n

2 Pricing Strategies (XP)

4 Monitor & Control Systems (XMC) n

2 MKT. Commercialization (XMC) .n

3 Market Expansion, Retraction, & n

Niche Market Selection (XNMS) n

slide14

Weighted Value of a firm’s M&A Marketing Expectations = YME, where ‘n’ represents the selected evaluation of the potential merged firms marketing component position.

YME = 5 (XML)n + 3(XMS)n + 2(XMA)n + 3(XIA)n + 2(XTM)n + 5(XPS)n + 2(XL)n + 4(XPM)n + 2(XP)n +4(XMC)n + 2(XMC)n + 3(XNMS)n

Establishing acceptable to unacceptable range

185 - 150 highly acceptable

149 - 130 acceptable

129 – 100 marginally acceptable

99 – 70 highly questionable

69 – 0 unacceptable

conclusion
CONCLUSION
  • Typically, the pre-merger discovery process limits itself to verifying the potential of hard assets such as property, equipment, patents and existing service contracts.
  • A marketer would also look at ‘relational’ assets that drive cash flow, such as corporate reputation, goodwill and the brand(s) itself/themselves.

(Ettenson, 2007)