What are some differences between M&A, JV, synergy risk?
How to layout M&A risk in the initial structure?
Ok, all of these are similar and related. But there are some nuances...
First: JV does not necessarily mean M&A - so some risks pertaining to M&A (getting to that later) will not apply to JVs
M&A risks I would call those directly related to the transaction. There could be myriads:
- No shareholder approval
- Financing falls apart
- Regulatory / anti-trust approval is withheld or comes with very strict obligations (i.e. to divest a certain business, see Bayer <> Monsanto deal)
- Change of control clauses in key supplier or customer contracts
- No sufficient take rate for the acquisition offer to achieve a squeeze-out
- In the case of (hostile) acquisitions, some poison pill move by the acquired company
- Insufficient due diligence, so you buy at a high price due to some skeletons in the closet (pending class action lawsuits, some wrongdoing, ...)
Synergy risks I would characterize as those risks to achieving the projected synergies that ultimately justify the acquisition price:
- Longer / more expensive integration of organisations, systems etc.
- Key people leaving
- People not leaving / more expensive lay-offs
- Key customers leaving / shifting their buying strategy (i.e. because they don't want to be dependent on a single supplier)
- Better bargaining position towards customers or suppliers does not materialize
- Culture Clash
JV risks are similar in flavour to both (some related to the transaction, such as anti-trust) and some related to the operation of the joint company. I'd add a few more:
- Governance: Decision making slow / unclear due to shareholder involvement
- Intellectual property transfer (see China JVs)
- No equal contribution from JV partners...
- Your people don't want to work for the JV
- Balance sheet consolidation: If it was a goal to get a certain business off your balance sheet (financing at-equity) then that may not happen if you set up the JV wrong / don't find a suitable partner
There are tons more, but these are some examples.
Related BootCamp article(s)
Investments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in most cases you need to have an idea about future financial impacts. A key tool to asses this impact is the cost-benefit analysis which is used to determine the net effect of potential revenues and costs.4 Comment(s)
LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). ... Open whole case
You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e ... Open whole case
Our client is a French holding company with annual revenues of about €1 billion. Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer t ... Open whole case
Tell me of a situation where you had an opinion and no one seemed to agree with you. What was your goal when you decided to join university / work / clubs / a sports team? Did you have a goal that you were not able to reach? What did you do? What do you want to be remembered for and how are ... Open whole case