Value in due diligence : contemporary strategies for merger and acquisition success

243 Pages·2010·6.268 MB·English

by  Ronald Gleich, Gordana Kierans, Thomas Hasselbach

Value in Due Diligence
Contemporary Strategies for
Merger and Acquisition Success

Edited by
Ronald Gleich, Gordana Kierans
and Thomas Hasselbach
Value in Due Diligence
This page has been left blank intentionally
Value in Due
Diligence
Contemporary Strategies for Merger
and Acquisition Success
Edited by

Ronald GlEich, GoRdana KiERans
and Thomas hassElbach
© Ronald Gleich, Gordana Kierans and Thomas Hasselbach 2010
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system
or transmitted in any form or by any means, electronic, mechanical, photocopying, recording
or otherwise without the prior permission of the publisher.
Published by
Gower Publishing Limited Gower Publishing Company
Wey Court East Suite 420
Union Road 101 Cherry Street
Farnham Burlington
Surrey VT 05401-4405
GU9 7PT USA
England
www.gowerpublishing.com
Ronald Gleich, Gordana Kierans and Thomas Hasselbach have asserted their moral right under
the Copyright, Designs and Patents Act, 1988, to be identified as the editors of this work.
British Library Cataloguing in Publication Data
Value in due diligence : contemporary strategies to merger
and acquisition success.
1. Business enterprises--Purchasing. 2. Business
enterprises--Valuation. 3. Consolidation and merger of
corporations--Management. 4. Financial risk management.
I. Gleich, Ronald. II. Kierans, Gordana. III. Hasselbach,
Thomas.
658.1'6-dc22
ISBN: 978-0-566-08982-4 (hbk)
ISBN: 978-1-4094-0938-0 (ebk)
Library of Congress Cataloging-in-Publication Data
Value in due diligence : contemporary strategies for merger and acquisition success / edited
by Ronald Gleich, Gordana Kierans, and Thomas Hasselbach.
p. cm.
Includes index.
ISBN 978-0-566-08982-4 (hardback) -- ISBN 978-1-4094-0938-0
(ebook) 1. Consolidation and merger of corporations--Management. 2. Corporations--
Valuation. I. Gleich, Ronald. II. Kierans, Gordana. III. Hasselbach, Thomas.
HG4028.M4V35 2010
658.1'62--dc22
2010020423
Contents
List of Figures vii
List of Tables ix
Acknowledgments xi
Preface xiii
About the Editors xv
List of Contributors xvii
PART ���� STRATegy DeveLoPmenT AnD TARgeT ��DenT��f��CAT��on
Chapter 1 Due Diligence on Strategic Fit and Integration Issues: A Focal
Point of M&A Success 3
Michael N. A. Cobblah, Dr Michael A. Graham and Dr Alfred Yawson
Chapter 2 Maximizing the Impact of M&A Controlling: Due Diligence’s
Link to Corporate Values. Practical Experience from the
Consumer Goods Industry 17
Dr Andreas Brokemper and Thomas Herrmann
Chapter 3 Accounting for Real Options in the Due Diligence Process 29
Mathias Gerner and Professor Ulrich Hommel
PART ���� Due D��L��genCe AnD ReSuLTS evALuAT��on
Chapter 4 Marketing Due Diligence 47
Emeritus Professor Malcom McDonald, Dr Brian Smith and

Professor Keith Ward
Chapter 5 Marketing: Its Valuable Role in the Due Diligence Process 63
Professor Mary Lambkin and Dr Laurent Muzellec
Chapter 6 Innovation Capability Due Diligence: Investigating the
Innovation Capability of Companies 81
Jan Buchmann and Florian Kissel
Chapter 7 IT Due Diligence: Why Information Technology Can Make or
Break a Deal 101
Uwe Bloch and Martin Zerfass
vi Value in Due Diligence
Chapter 8 Due Diligence on Young Companies: A Case Study 119
Dr Gordana Kierans, Professor Ronald Gleich and
Thomas Hasselbach
PART ������ DeAL negoT��AT��on AnD PoST-meRgeR ��nTegRAT��on
Chapter 9 Redefining Due Diligence to Jump Start Effective Integration 139
Professor Timothy J. Galpin
Chapter 1 0 Integration Due Diligence: Setting the Stage for Value Creation 155
Professor L. Jay Bourgeois III and Henning Hoeber
Chapter 1 1 The Attributes of a Successful Acquisition Leader 171
Professor Athina Vasilaki
Chapter 1 2 Post-Merger Growth Due Diligence 187
Mehdi Farhadi and Professor George Tovstiga
Index 207
List of Figures
2.1 Typical Phases of M&A 19
2.2 Essential Audit Fields of Due Diligence 22
3.1 Payoff Functions of Financial Call and Put Options 32
3.2 Expanded versus Passive NPV Distribution 34
3.3 Price Determination in Mergers and Acquisitions 36
3.4 Option-Based Organization of the Due Diligence Process 37
3.5 Moneyness and Deal Relevance of Real Options 38
3.6 The Path from Due Diligence to Purchase Price 39
4.1 From Marketing Strategy to Shareholder Value 50
4.2 The Outline Process of Marketing Due Diligence 51
4.3 Questions to Explicate the Strategy 53
5.1 Marketing Due Diligence 68
5.2 Evaluating the Customer Bases 69
5.3 Leveraging Brand Equity through M&A 72
5.4 Marketing Synergies and Performance 76
6.1 Lawson and Samson’s Innovation Capability Framework 84
6.2 Sammerl’s Innovation Capability Model 85
6.3 Bubble Diagrams for Innovation Portfolios 96
7.1 Merger and Acquisition Transaction Timeline 102
7.2 Document Register 106
7.3 Analysis Strategic Fit 107
7.4 Approach IT Due Diligence 108
7.5 IT Value Proposition to Merger and Acquisition Projects 113
7.6 Risk Assessment Integration Scenarios 115
8.1 Due Diligence Process for Young Companies 127

10.1 The PMI Pyramid 156
10.2 Acquisitions by Degree of Relatedness to Core Business 157
10.3 Common Organizational Arrangements 164
12.1 Post-Merger Growth Dilemma 189
12.2 Due Diligence Process 194
12.3 Post-Merger Growth Due Diligence Audit 196
12.4 Alternative Approach to Design an M&A 203
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List of Tables
1.1 Acquisitions by Firms in G7 Countries during 2007–08 4
2.1 Example of a Simplified Brand Valuation 26
4.1 Sub-components of Market Risk 55
4.2 Sub-components of Share Risk 56
4.3 Sub-components of Profit Risk 58
6.1 Innovation Management 83
6.2 Approaches on Assessing Organizational Learning 87
6.3 Approaches on Assessing Organizational Culture 91
6.4 Measures Throughout the Innovation Process 93
8.1 Incubator and Technology Park Objectives 124
8.2 Due Diligence Checklist on Young Companies 128
9.1 Due Diligence during the Six Stages of the Deal Flow Model 143
9.2 Cultural Comparison Diagnostic 146
9.3 Retention and Re-recruitment Assessment 148
11.1 Leadership Attributes 177
11.2 The Effect of Leadership Attributes on Acquisition Performance 178