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Global Leading Companies' M&As And Successful Strategies of Each M&A Type

Global Leading Companies' M&As And Successful Strategies of Each M&A Type

KIM Seung-Pyo

Sept. 8, 2010

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Originally released on July 19, 2010

While concerns rise over the stagnant growth of many Korean companies, companies in Japan, China and emerging economies are aggressively engaging in mergers and acquisitions (M&A) to secure technological competitiveness and strengthen their global status. Korean companies have reached a point where they need to consider shifting from organic growth to M&As, which can serve as a new breakthrough strategy.

This report examines M&A data and cases of top global companies during the past 10 years, and derives key success strategies for each type of M&A. Ultimately, it aims to stimulate more M&A pursuits by Korean companies and raise the completion rates of their activity.

An analysis of earnings performances of Fortune 500 companies and 1,034 M&As executed by them in the past 10 years shows that companies that achieved higher value were those that focused on growth, and that M&A was an effective strategic tool in their expansion. Among high-growth companies, those that executed M&As created higher value. In particular, performance varied according to the type of deal and how well the deal meshed with corporate strategy. Meanwhile, companies performing small-scale deals frequently enjoyed higher performance.

M&As can be divided into five categories based on their purpose and size: 1) horizontal expansion; 2) product portfolio expansion; 3) competency reinforcement; 4) vertical integration; and 5) new business expansion. Performance varied among the categories. Based on existing studies and case analyses, SERI used six criteria for to gauge M&A success: 1) corporate growth and M&A strategy; 2) CEO leadership; 3) M&A organization; 4) due diligence; 5) post-merger integration; and 5) risk management. The relative importance of success factors and key success strategies varied according to M&A type. This suggests that in order to raise the chances of M&A success more resources need to be allocated when crafting a strategy geared for each M&A type.

The results of this report have valuable implications for corporate leaders. First, Korean companies should overcome the fear of executing M&As and accumulate experience by performing small-scale deals. Second, they need to set up a growth strategy at an early stage and take a customized approach, not a simplistic one-size-fits-all approach. Finally, companies need to establish an efficient internal process, which is the basis of a prompt decision making and enables a strict examination of the grounds of argument for investment.

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