Page 41 - FINAL CFA II SLIDES JUNE 2019 DAY 6

LOS 25.d: Explain, based on industry life cycles, the relation
between merger motivations and types of mergers. READING 25: MERGERS AND ACQUISITIONS

Pioneer/development phase: Younger/smaller firms seek to sell themselves to larger/mature firms MODULE 25.1: MERGER MOTIVATIONS
with ample resources and seeking new growth. Conglomerate and horizontal mergers popular!

Rapid growth phase: Usually driven by capital requirements as companies look for more resources to finance expansion. Conglomerates popular as larger, more mature
companies are able to provide capital, and horizontal mergers as similar firms combine resources to finance further growth.

Mature growth phase: Generally focused on operational efficiencies as companies seek to generate economies of scale to reduce costs to keep profit margins high. As a
result, horizontal and vertical mergers that provide synergies and expand market power are most common in this phase.
Stabilization phase: Also to generate economies of scale in order to compete with a lower cost structure. They may also acquire smaller companies that can provide stronger
management and a wider financial base. In this phase, horizontal mergers are the most common!
Decline phase: All three types of mergers are common:
• Seek horizontal merger simply to survive,
• Vertical mergers to increase efficiencies and increase profit margins, and
• Conglomerate mergers to find new growth opportunities.