Question
In the first section, do some research to identify an organization that has recently experienced acquisition, merger, or restructuring as discussed in the course materials. Briefly describe the action (e.g., acquisition, merger, restructuring) including an evaluation of why it occurred and the outcome (e.g., is it working? Is it accomplishing what was expected?). This first section only needs to be one or two paragraphs. For the second section, select one of the following bullet point topics. If someone has already posted on one of the bullet points, select another one until all the bullet points are used so that we can discuss several different relevant topics. Once all the bullet points have been addressed, then you may begin to reuse the bullet points with the expectation that varied responses continue. The second section of your post only needs to be one or two paragraphs.
Of the many reasons discussed in your readings for making acquisitions, the rationale that may be the strongest is that acquisitions allow firms to capture new capabilities. From among the other reasons for making an acquisition listed in the readings, choose the one that you think provides the strongest rationale for making an acquisition. Defend your choice with research and provide appropriate examples.Similar to the previous bullet point, choose a reason for making an acquisition that you think provides the weakest rationale. Defend your choice with research and provide appropriate examples.As noted in the course lecture, mergers and acquisitions are similar strategic moves.
Evaluate some of the reasons that an organization might choose one option (merger or acquisition) over the other. Defend your reasons with research and provide appropriate examples.Evaluate when restructuring can be seen as a positive business strategic move. In your response, be sure to analyze how shareholder value is created through restructuring. Defend your reasons with research and provide appropriate examples.The final section or paragraph (three or four sentences) of your initial post should summarize the one or two key points that you are making in your initial response.
Solution
Mergers and acquisitions are everyday strategic decisions in companies around the world, and businesses make strategic decisions to improve their operations. The decisions are driven by numerous strategic factors aimed at improving the overall performance of the acquiring company. One of the leading acquisitions in the recent past is Amazon’s acquisition of Whole Foods at $13.7 billion (Phillips-Connolly & Connolly, 2017), which was motivated by the need for the company to venture into the grocery industry. The e-commerce giant Amazon decided to buy the high-end organic grocery firm to increase its market reach using physical stores. Although the acquisition was not smooth in the beginning, it enabled Amazon to acquire hundreds of physical stores and provide a strong entry into the grocery and food sector, which is one of the most competitive in the market. Although acquisitions occur for numerous reasons, the strongest is an entry into new markets, while the weakest is as a defensive positioning strategy, and companies may choose acquisition due to the potential to improve market capability and as a restructuring strategy.
Acquisitions are one of the ways for a company to improve its market performance and capture new capabilities. The leading reason is to venture into new markets and enhance the company’s revenue streams and profitability (Nelson, 2018). For example, for Amazon, the focus was to venture into the physical grocery market since the firm operates in the online platform. Companies always have new markets they would like to venture into and increase their profitability. However, since beginning new businesses is costly, they acquire current businesses and continue operating in the new market, mostly using the same model as the acquired firm (Galpin, 2014). They also acquire companies whose products are complementary to the current product portfolio expecting that the sum of parts will be more significant than the whole. Thus, acquisitions remain one of the strategic decision to enter into a new market and enhance performance and profitability.
However, some companies acquire others because of one of the weakest reasons, which is as a defensive positioning strategy. The model of acquisition occurs in competitive markets where a company could make an acquisition decision to prevent a competitor from acquiring it (Ortiz‐de‐Mandojana & Bansal, 2016). For example, in the Disney’s case, the decision would be motivated by the need to prevent a competitor, such as Warner Media, from acquiring Pixar and benefiting from the animation market. The factor is weak since it is not supported by real cost-benefit analysis and could be an impulse decision solely driven by the need to be defensive (Öberg, 2015). Hence, the defensive positioning strategy is the weakest reason for acquisition.
Businesses make strategic decisions when selecting a market entry mode based on several factors and forces. For example, mergers could have numerous benefits compared to other methods, such as mergers. First, acquisitions reduce barriers to market entry because the company acquires a firm that is already in operation (Öberg, 2015). Secondly, acquisitions enable a company to enjoy market power at a lower cost that a decision to create a new business from scratch. The method allows a firm to increase its market share faster regardless of competition (Ortiz‐de‐Mandojana & Bansal, 2016). Thirdly, the company enjoys additional resources and competencies that are lacking in the current operations. Finally, the acquiring business enjoys more supplies and less pressure from suppliers because it can enter into contracts with those supplying to the acquired firm (Öberg, 2015). Generally, acquisitions allow companies to enjoy numerous benefits compared to other business models.
Restructuring occurs in business when there is a need to alter the organizational structure or the business model. It can also happen when the company perceives the need to adjust financially regarding its assets and liabilities. Restructuring is favorable to a company when it is necessary to turn around its financial performance (Girod & Whittington, 2017). Restructuring creates shareholder value by reducing the cost of operations and increasing profitability, which translates to economic benefits for the restructuring firm. For example, a company could restructure to incorporate a new strategy and increase efficiency and production, which reduces the cost of operation, while increasing profitability. Generally, restructuring relates to attempts to improve the firm’s financial performance and generate more returns for shareholders and other stakeholders, such as management and employees. Restructuring is driven by strategic decisions aimed at creating positive changes to the company and its stakeholders.
The discussion focuses on one of the changes that businesses make to improve their performance in their current market or venture into a new one. Acquisitions are the most profitable decisions for companies intending to enter and succeed in new markets to grow their revenue streams and profitability. The strongest reason for an acquisition is to enter a new market to enhance profitability, while the weakest is acquisition as a defensive positioning strategy. An acquisition could also relate to restructuring, which involves internal changes that add value to the business and its shareholders.
References
Galpin, T. J. (2014). The complete guide to mergers and acquisitions: Process tools to support M&A integration at every level. John Wiley & Sons.
Girod, S. J., & Whittington, R. (2017). Reconfiguration, restructuring and firm performance: Dynamic capabilities and environmental dynamism. Strategic Management Journal, 38(5), 1121-1133.
Nelson, T. (2018). Mergers and Acquisitions from A to Z. Amacom.
Öberg, C. (2015). Acquisition as an adaptation strategy. Companion to Mergers and Acquisition, Routledge, Oxford, 27-39.
Ortiz‐de‐Mandojana, N., & Bansal, P. (2016). The long‐term benefits of organizational resilience through sustainable business practices. Strategic Management Journal, 37(8), 1615-1631.
Phillips-Connolly, K., & Connolly, A. J. (2017). When Amazon ate Whole Foods: Big changes for big food. International Food and Agribusiness Management Review, 20(1030-2018-016), 615-621.
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