Question

Strategic planning in a dynamic environment

12. Why are merger and acquisition popular in many firms competing in the global economy?

Answer 1

Strategic mergers is business model adopted by growing and expanding companies to extend the product portfolio and get strategic advantages in the market. Few major types of merger is to do backward integrations, horizontal mergers, downstream acquisition etc. In backward integrations, the company’s would often look at doing strategic tie ups or acquisition of their suppliers in order to have continuous supply of raw materials at profitable prices. In downstream acquisitions, companies would often acquire the distribution channels, logistic providers etc. to have complete control over the last mile delivery. In horizontal mergers, the companies would do tie ups with companies who help in selling the product or service to a larger audience.


To understand this better, let us take an example. In 2009, Live Nation did a strategic merger with Ticketmaster who are into selling tickets and promoting live events. This would be an offensive move which ensures a collaborative approach to promotion of events. The financial reports of both companies show tremendous rise in the valuation of both of them. Both have benefited from the deal but it has to be noted that Live Nation`s brand value and promotion has gone higher and achieved all major target they have kept. There were multiple parties who opposed the deal stating it could lead to monopoly but in spite of such issues, the deal went forward and was completed. The major advantages for each company can be highlighted as follows:
• Less investment in promotion and information sharing platforms
• Easier to meet customer and artist demands and plan tour schedules
• Easy access to multiple venues across the globe
• Less competition with each other, since both are leading companies in the same space
• Easier to access new markets and promote artists
• Ensure ticket pricing is competitive and pass on benefits to customers

This shows the benefits of joining force in an extremely VUCA world. All leaders will identify opportunities to expand their business horizon and merger and acquisition are one of the most beneficial methods to all patterns who are involved.

To summarize, the major benefits of mergers and acquisition can be:
• Higher value of the organization
• Higher access to pool of resources including money, infrastructure, knowledge and manpower
• Cost and process efficiency
• Easier to enter new markets
• Faster product diversification

Globalization has grown exponentially in the recent years and is molding the management approach, leadership and the thought leaders to consider the holistic view when taking decisions. In business sense, globalization is removing the geographical barriers to create value for customers without major differentiation. This has also led to many strategic moves to enter new markets. M&A is one of the most preferred methods to enter a new market. Sharing the resource pool would mean companies can tackle problems better and they can take on projects and challenges with teams having higher competencies than earlier days. There will also be lot of best practices that move from one organization to another which makes it easy for processes to be implemented. Sharing the knowledge base will also help in ensuring the product and services can be shared better to customers to provide them an augmented customer experience.