The document discusses mergers and acquisitions (M&As) theory and practice in Central Europe. It provides an overview of M&As as an economic phenomenon and reasons for M&As. It explores the concept of synergy as the goal of M&As to create value. Drivers of synergy include strategic relatedness between acquiring and target companies, operational integration challenges, and dealing with differences in company culture. The document also examines a case study of a successful horizontal acquisition between two construction companies in Slovakia and the Czech Republic where cultural similarities helped with integration.

1. Synergy in Mergers & Acquisitions Theory and Practice in Central Europe

10. Synergy – a Quest for Holy Grail October 24 2002 Synergy in Mergers & Acquisitions SIROWER:“Suppose you are running at 3 mph, but are required to run 4 mph next year and 5 mph the year after. Synergy would mean running even harder than this expectation while competitors supply a head wind. Paying a premium for synergy – that is, for the right to run harder – is like putting on a heavy pack. Meanwhile, the more you delay running harder, the higher the incline is set. This is the acquisition game.” Not understanding the essentials may be described as (Stern): “ Paying unjustified premiums is tantamount to making charitable contributions to random passers-by, never to be recouped by the buying company no matter how long the acquisition is held.”

12. Drivers of Synergy October 24 2002 Synergy in Mergers & Acquisitions INITIAL FACTORS INTERNAL FACTORS SYNERGY Strategy Operations Contested vs. Uncontested Acquisition Premium System Integration Strategic Relatedness Managerial Risk Taking Relative Size Method of Payment Control and Culture Time

13. Strategic relatedness October 24 2002 Synergy in Mergers & Acquisitions Acquisition unrelated - strategic cross-sector related horizontal vertical complementary competitive

14. Strategic relatedness – cont’d October 24 2002 Synergy in Mergers & Acquisitions Cross-selling Customer-based Geographically-based ? ? same territory different territory distinct groups of customers similar groups of customers => cross-sector acquisition => horizontal-complementary acquisition X for horizontal-competitive: same territory, same group of customers A A B B Customers of A-company Customers of B-company Area operated by A-company Area operated by B-company

24. Control & culture October 24 2002 Synergy in Mergers & Acquisitions Have become increasingly the most CRITICAL SUCCESS FACTOR in recent transactions difficult to define and control: “ shared set of norms (both formal and informal), values, beliefs and expectations” or as “an interconnected composite of values, work rituals and leadership” Too aggressive culture integration doomed acquisition of Montgomery securities by Nations Bank Corp. in 1997. Less than a year and half later Montgomery securities founder Thomas Weisel left, taking 100 of his best investment bankers with him.

28. Value Estimation in M&A Decision Making – technical issues (cont’d) October 24 2002 Synergy in Mergers & Acquisitions SEE GRAPHS

29. Value Estimation in M&A Decision Making – technical issues (cont’d) October 24 2002 Synergy in Mergers & Acquisitions PROBABILITY MODEL: 1.f(x) is continuous 2. 3. 4.f(0) > 0 5.f(x) is nonincreasing in x

30. Value Estimation in M&A Decision Making – technical issues (cont’d) October 24 2002 Synergy in Mergers & Acquisitions SEE GRAPHS

33. Cornerstones of Synergy October 24 2002 Synergy in Mergers & Acquisitions Strategy: financing, revenue enhancement Operations: joint contracts acquiring, cross-referencing joint PPE acquiring Systems: core problem – to support the above pillars management lines, ICT systems Culture: enabled by cultural affinity and preceging co-op. challenge: to make people cooperate also on lower management levels create a “Code of Joint Working”

35. Questions ? October 24 2002 Synergy in Mergers & Acquisitions

36. Thank you for attention October 24 2002 Synergy in Mergers & Acquisitions