To Achieve Synergies : Know Your Targets

To achieve synergy; know your target!

An empirical research to determine which integration strategy is favourable for achieving operating synergy following a merger or acquisition in the Dutch SME market

MSc Thesis

Michiel Vos

Supervisors: Mrs. A. Sabidussi MSc Dr. E.F.M. Wubben F.A.J. Kuipers MBA RV Drs. D.A. Boissevain RC

Amsterdam, February 2008

To achieve synergy; know your target!

An empirical research to determine which integration strategy is favourable for achieving operating synergy following a merger or acquisition in the Dutch SME market

Amsterdam, February 2008

Student: Reg. No: College year: Department:

Michiel Vos 830927 908 070 2007 / 2008 Management Studies Group, Wageningen University & Research Centre

Specialization: Code:

Management Studies MST-80430

Supervisors WUR: Mrs. A. Sabidussi, MSc Dr. E.F.M. Wubben Supervisors AenF: F.A.J. Kuipers MBA RV Drs. D.A. Boissevain RC 1

TABLE OF CONTENTS

List of abbreviations ________________________________________________________ 5 Acknowledgements _________________________________________________________ 6 Management summary ______________________________________________________ 7 Introduction ____________________________________________________________

___ 9 1 2 Problem statement ____________________________________________________ 10 Conceptual research design _____________________________________________ 12

2.1 2.2 2.3 2.4 Research objective ______________________________________________________ 12 Research issue_______________________________________________________

___ 12 Research framework ____________________________________________________ 14 Key-concept definitions __________________________________________________ 16

3

Integration Strategies __________________________________________________ 20

3.1 3.2 Importance of a suitable integration strategy ________________________________ 20 Integration approaches __________________________________________________ 21

3.2.1 3.2.2 3.2.3

3.3

Preservation ____________________________________________ 22 Symbiosis ______________________________________________ 22 Absorption _____________________________________________ 23

Conclusion ____________________________________________________________

23

4

Theories of firm performance and motivations _____________________________ 24

4.1 4.2 4.3 4.4 4.5 4.6 Transaction cost theory __________________________________________________ 24 Value chain theory ______________________________________________________ 25 Resource based view theory ______________________________________________ 26 Resources related with strategy ___________________________________________ 28 Firm performance improvement through M&A _____________________________ 30 Conclusion ____________________________________________________________

32

5

Operating synergy_____________________________________________________

34

5.1 5.2 Synergy ____________________________________________________________

___ 34 Types of operating synergy _______________________________________________ 35

2

5.2.1 5.2.2

5.3

Cost based operating synergy ______________________________ 36 Revenue based operating synergy___________________________ 37

Conclusion ____________________________________________________________

40

6

Characteristics of merging companies ____________________________________