Mergers, Acquisitions, and Divestitures, oh my! 2.0

In this seventh session, and the final session of the second module of the course, we look at the remaining mode for growth (buying — mergers and acquisitions), as well as modes for corporate scope reduction through divestiture (sell-offs and spin-outs). From Puranam and Vanneste, in the first module, we began by identifying the desired synergies (4C synergies) and determined whether those synergies were best managed within or between firms (governance costs: transaction versus ownership costs). For synergies best managed within firms (asymmetric and/or high resource modification), we considered key trade-offs between internal development and acquisitions in our session on internal development (these trade-offs remains relevant for our discussion, so refresh your memory if needed). We will also consider the trade-offs between synergy creation and disruption as part of post-merger integration, and deliberate learning in the acquisition process, before moving on to divestitures. In our discussion of divestitures, we will consider the differences between sell-offs and spin-offs, the unique challenges of legacy divestitures, how divestitures play a role in growth plans, and how modularity can be used to facilitate divestiture.

Post merger integration — synergy creation and disruption trade-off

For an acquisition to be successful, you need to know what you plan to achieve through the acquisition (desired synergies), recognizing the disruption that is likely to occur to existing activities at higher levels of integration (the topic of the next section below). It is also important to recognize which resources from the target (and perhaps also the acquirer) are unnecessary to maintain and should be divested as part of the acquisition plan (the final section of this summary). A number of questions can be asked to clarify expectations around integration. First, how are the strategic resources currently being used, and how will redeploying them to create the desired synergies affect that use? Are they fungible, scale-free, and/or modularly organized to ease redeployment? Second, what are all the resources being acquired that were not part of the identified strategic resource gap? Should those resources continue to be used as they are now, should new synergies be created with them (perhaps more integration than originally planned), or should they be divested? Finally, how might the value of those resources (or perhaps other resources of the…