Synergies in Mergers and Acquisitions

1 Synergies in Mergers and Acquisitions A Qualitative Study of Technical Trading Companies Master s thesis within Business Administration Author: Sofie Eliasson Tutor: Anders Melander J nk ping December 2011 Acknowledgements The author would like to extend sincere thanks to the tutor, Anders Melander, Associate Professor in Business Administration, and all of the participating company representatives. _____ Sofie Eliasson Master s Thesis in Business Administration Title: Synergies in Mergers and Acquisitions Author: Sofie Eliasson Tutor: Anders Melander Date: December 2011 Subject terms: Synergies , Mergers and Acquisitions , acquisition , technical trading companies Abstract Background Synergies or rather the absence of Synergies has been blamed for many failures in re-gards to Mergers and Acquisitions .

2 Still, there are companies using Mergers and acqui-sitions as a natural part of their growth strategy, indicating that these organizations manage to handle Synergies efficiently. Purpose The purpose of this study is to analyze Synergies in regards to Mergers and Acquisitions in technical trading companies to learn about success factors. Method Because of Synergies complexity this study has used a qualitative approach. The em-pirical findings have been compiled by semi-conducted interviews with company rep-resentatives from the organizations regarded in the study.

3 Conclusion The conclusion points at several success factors in regards to Synergies and Mergers and Acquisitions . However, the three most important were found to be; the entrepreneurship and human capital, the corporate head s knowledge, the experience and selection capability and the inclusion of Acquisitions (developed from the urge for growth) in their business models. iTable of Contents 1 Introduction .. 1 Background .. 1 Problem .. 2 Purpose .. 4 Research Questions .. 4 2 Method .. 5 Qualitative Method .. 5 Primary and Secondary Data.

4 6 Collection of Data .. 6 Interviews and Analysis of Data .. 7 Literature Search .. 8 Research 9 Delimitations and Limitations .. 9 Validity and Reliability .. 14 Criticism of 15 3 Theorethical Framework .. 16 Different Types of Synergies .. 16 Motives for Growth .. 18 Porter s Value Chain .. 20 Different Mergers & Acquistions .. 21 Problems Associated with Synergies .. 22 Negative Synergies .. 26 The Integration Phase .. 26 Synergies in Consolidation of Fragmented Industries .. 30 4 Empirical Findings .. 32 Addtech.

5 32 Interview .. 34 Indutrade .. 37 Interview .. 40 Lagercrantz Group .. 47 Interview .. 50 OEM International .. 52 Interview .. 53 BE Group .. 60 Interview .. 60 Latour 65 Interview .. 66 5 Analysis .. 74 Walkthrough of Synergy 74 Addtech .. 74 Indutrade .. 75 Lagercrantz Group .. 75 OEM International .. 75 BE Group .. 76 Latour Industries .. 77 Synergies between Independent Subsidiaries .. 77 Synergies where A Partly or Complete Integration is Taking Place .. 86 Conclusion .. 90 6 Conclusion.

6 94 7 Further Research .. 95 List of References .. 96 Books.. 96 Academic Articles and Journals .. 96 Internet .. 98 The Organizations .. 98 Appendix .. 99 iiiFigures Figure The model illustrates how organizations incentives for growth creates M&As, and that M&As in turn lead to realization of Synergies contributing to the desired growth (Sofie Eliasson, 2011).. 20 Figure M&As do take different forms depending on how the organizations are related to each other. The figure summarizes the different M&A alternatives the organizations faces (Lynch, 2006).

7 Figure created by the author (2011).. 21 Figure The figure shows the relationship between time frame and probability of success in regards to synergy realization (Harding & Rovert, 2004).. 23 Figure The colors mirrors what kind of Synergies that can be found depending on the organizations market access and capabilities. The light blue color reflects pure cost Synergies and the dark blue color represents purely revenue Synergies . Simplified, the lighter color, the more cost Synergies , and the darker the color is, the more revenue Synergies (Sirower, 2006).

8 25 Figure The level of need for autonomy and the level of need for integration decide what kind of integration strategy the M&A should adopt (Schriber, 2007).. 27 Figure The figure explains Indutrade s, Addtech s and Lagercrantz relations with their acquired subsidiaries (Sofie Eliasson, 2011).. 75 Figure The figure explains how OEM International, BE Group and Latour Industries (only supplementary Acquisitions ) acquire companies and partly or fully integrate them in the existing business (Sofie Eliasson, 2011).. 76 Figure The figure explains how two different acquisition approaches can be used within the same corporate group, applicable in OEM International, BE Group and Latour Industries (Sofie Eliasson, 2011).

9 77 Figure The figure summarizes the different acquisition strategies the organizations pursue (Sofie Eliasson, 2011).. 91 Figure The figure summarizes the perceived view on Synergies in regards to type of diversification and level of integration (Sofie Eliasson, 2011).. 92 Figure A simplified and remodeled figure of Chesbrough s & Rosenbloom s (2002) business model, demonstrating how Acquisitions constitute a part of the organization s business model. 93 Figure 0-1. Cutting from brochure produced by Indutrade (continuation from previous page).

10 (Please note that the cutting is upside down in the brochure as well.) ..100 Tables Tabell The table summarizes the different selections and falling offs of companies leading to the final research population.. 12 Tabell The table ranks the motives for M&A in Sweden, UK and US where the question What did you look for when conducting the ivM&A? was asked to managers involved in M&A activities (Sevenius, 2003) .. 19 Table The table summarizes all the Synergies found between the independent subsidiaries in this study. The Synergies are either classified as revenue Synergies , cost Synergies or a combination of these two.