Greenfield vs.
Acquisition/Merger
Greenfield vs. Acquisition/merger
Foreign operations require bundling imported
and local factors
Greenfield: the MNE does most of the
bundling
Acquisition/Merger: the MNE buys an already
mostly bundled package
Mode of entry
greenfield acquisition
shared
ownership
full
Greenfield
Equity Joint
Venture
Partial
acquisition
Greenfield
Wholly-owned
subsidiary
Full
acquisition
Factors that affect the choice greenfield
vs. acquisition
1. Match between MNE and local assets to be
bundled
2. Degree of integration desired
3. growth rate of target market
4. Managerial resources of foreign investor
5. Risk aversion of foreign investor
6. Availability of targets
7. Legal restrictions
Factors that are usually bundled within
firms
•
•
•
•
•
Trademarks
Relationships with customers
Relationships with governments
Company culture
Tacit know how
1. Match between MNE and local assets
a. Are those factors valuable?
b. Are those factors hard to acquire in
unbundled form?
c. Can those factors be bundled with MNE
factors?
Is it efficient to bundle MNE factors
with those of a local firm?
• MNE competitive advantage is in marketing
or management
• MNE competitive advantage is in human or
technological processes
Greenfield vs. Acquisition
Greenfield
+
=
Acquisition
+
=
Change in Equity Price of Acquirer One Year after Acquisition for 107
Cross Border Deals, 1996-1998
17%
Deals added value
Deals produced no discernible
difference
53%
30%
Deals destroyed value
Source: KPMG
Most acquisitions are ultimately divested
Proportion divested
(%)
1. All acquisitions
53
2. Acquisitions in new fields
61
3. Acquisitions in unrelated new
74
fields
4. Joint ventures
40
(Source: Porter)
Acquisition challenges
a. Acquisition process
b. Post-acquisition
integration
a. Acquisition process
• Choosing the right target
• Paying the right price
• Dealing with stakeholders (unions,
government, media)
Acquisition process
1. Time pressure
2. Limited information
3. Lack of overall vision
4. Danger of escalating commitment
(winner’s curse)
1. Time Pressures in the Pre-Acquisitive DecisionMaking Process
Theory
Acquisition
objectives
Acquisitive
search
Strategic
evaluation
Reality (in most cases)
Acquisition
objectives
Acquisition
opportunity
Strategic
evaluation
Financial
evaluation
Negotiation
Financial
evaluation
Negotiation
2. Limited information
International accounting differences
Consolidation
Extra-ordinary items
Provisions
Other undisclosed items
Environmental exposure
Other undisclosed liabilities
In perspective
Daimler-Benz’s net profit/loss; DM bn
2
1
0
-1
-2
1990
91
92
93
94
German accounting rules
American accounting rules
Sources: Extel Financial; Company reports
b. Post-acquisition integration
Level of integration should match expected
benefits
• Strategic (pre-empt competitors)
• Bargaining gains (market power, purchasing
economies)
• Scale and scope economies (reputation,
know-how, distribution)
• Skill transfer
Need for Strategic
Interdependence
Low
High
High
Preservation
Symbiosis
Low
[Holding]
Absorption
Need for
Organizational
Autonomy
Types of Acquisition Integration Approaches