Question 1

When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than strategic controls.

Accepted Answer

When a firm is highly diversified, it becomes challenging to manage each business unit strategically. Therefore, managers often rely on financial controls to assess performance across diverse units.

Question 2

Company experiences show that participation in and overseeing the activities required for making acquisitions can divert managerial attention from other matters that are necessary for long-term competitive success.

Accepted Answer

Engaging in acquisitions often requires significant managerial focus and resources, which can detract from attention to other critical areas necessary for sustaining long-term competitive advantage.

Question 3

Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy.

Accepted Answer

Acquisition strategies can often bring products to market faster by leveraging existing resources and capabilities, whereas internal development may take longer due to the need to build from scratch.

Question 4

The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself.

Accepted Answer

The post-acquisition integration phase is crucial for acquisition success as it determines how well the two companies can combine operations, cultures, and systems to achieve the desired synergies and objectives.

Question 5

Horizontal acquisitions and related acquisitions tend to contribute less to a firm's competitiveness than do unrelated acquisitions.

Accepted Answer

Horizontal and related acquisitions often enhance a firm's competitiveness by creating synergies, reducing competition, and expanding market share, unlike unrelated acquisitions which may not align with the firm's core competencies.

Question 6

Top managers typically become overly focused on acquisitions because only they can perform most of the tasks involved, such as performing due diligence on the target firm.

Accepted Answer

Top managers may focus on acquisitions, but due diligence and other tasks can be performed by specialized teams and advisors, not just by top managers.

Question 7

It is relatively common for a firm to develop new products internally to diversify its product lines.

Accepted Answer

The answer of It is relatively common for a firm...

Question 8

Junk bonds are now used more frequently to finance acquisitions primarily because of the belief that debt disciplines managers.

Accepted Answer

The answer of Junk bonds are now used more frequently...

Question 9

Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either firm's assets with another company.

Accepted Answer

Private synergies are specific to the unique combination of the acquiring and acquired firms' assets, capabilities, or resources, making them difficult to replicate with other companies.

Question 10

The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.

Accepted Answer

Inadequate due diligence can lead to overestimating the value of the target company, resulting in overpayment during acquisition.

Question 11

One of the attributes of a successful acquisition is that the acquiring firm conducts effective due diligence to select target firms and evaluate the target firm's health.

Accepted Answer

Effective due diligence helps the acquiring firm assess the financial, operational, and strategic aspects of the target firm, reducing risks and increasing the likelihood of a successful acquisition.

Question 12

Large or extraordinary debt is defined as overpaying for an acquired firm.

Accepted Answer

Large or extraordinary debt refers to a significant amount of money owed by an entity, not specifically related to overpaying for an acquired firm. Overpaying for an acquisition is often referred to as "goodwill" or "overvaluation," not debt.

Question 13

Royalware, based in New England, wanted to establish a foothold in the Midwest, so it made an unsolicited bid to purchase TrueBlue, a similar firm based in Indiana.This is an example of a takeover.

Accepted Answer

A takeover occurs when one company makes a bid to assume control of or acquire another, which is what Royalware is attempting with TrueBlue.

Question 14

Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using a related diversification strategy.

Accepted Answer

The answer of Unrelated diversified firms become overdiversified with a...

Question 15

Acquisitions can become a substitute for innovation in some firms and can leave a firm vulnerable.

Accepted Answer

Acquisitions can lead to a reliance on external innovation rather than developing internal capabilities, potentially making a firm vulnerable if it fails to integrate or leverage acquired assets effectively.

Question 16

Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders.

Accepted Answer

Junk bonds are high-yield bonds with lower credit ratings, often used to finance risky ventures, offering higher returns to compensate for the increased risk.

Question 17

Transaction costs resulting from an acquisition refer to the direct and indirect costs resulting from the use of acquisition strategies to create synergies.

Accepted Answer

Transaction costs in acquisitions include both direct costs, like legal fees, and indirect costs, such as the time and resources spent on integrating the acquired company, all aimed at achieving synergies.

Question 18

United Technologies Corp.(UTC) uses acquisitions of firms such as Otis Elevator Company (elevators, escalators, and moving walkways) and Carrier Corporation (heating and air conditioning systems) as the foundation for implementing its related diversification strategy.

Accepted Answer

The answer of United Technologies Corp.(UTC) uses acquisitions of firms...

Question 19

Synergy is created by the efficiencies derived from economies of scale and economies of scope and by sharing resources across the businesses in the newly created firm's portfolio.

Accepted Answer

Synergy refers to the increased efficiency and value created when businesses combine resources, benefiting from economies of scale (cost advantages due to increased output) and economies of scope (cost advantages due to a variety of products).

Question 20

Research has shown that the more different the acquired firm is in terms of competencies and resources than the acquiring firm, the more likely the acquisition is to be successful.

Accepted Answer

Research generally suggests that acquisitions are more successful when the acquired firm has complementary, rather than completely different, competencies and resources, as this can create synergies and enhance the acquiring firm's capabilities.

Quiz 7: Merger and Acquisition Strategies