External growth in forms of Mergers & Acquisitions (M&A) is massively driving the growth of many companies. In 2015, the total amount of 3.8 to 5 trillion to US-Dollars (USD) was spent on M&A, marking it as the year of the highest spending ever. Vivid sectors are healthcare and technology: in 2015, both accounted for over 700 billion USD each. Latest news reports a joint venture between Siemens and Gamesa merging their wind business and creating a new leading market player. If everything proceeds as planned, this will be the next big portfolio change after 2015’s acquisition of Dresser-Rand for approximately 7.8 billion USD. These latest developments in general and in particular within the Siemens AG are investigated in this paper with the objective of answering the question: What is the strategy behind M&A and how to evaluate the price of an acquisition? Thereby the case of the acquisition of Dresser-Rand Group Inc. by Siemens AG is covered.
Handling this topic the first step is defining the strategies to grow a company either with organically or inorganically growth. Subsequently, a closer look is taken at external growth in forms of M&A. The common forms of inorganic growth are introduced and the connected strategy is examined and evaluated. In addition, Siemens’ key acquisitions are considered to derive the underlying strategy.
The second part highlights how a possible acquisition can be evaluated. Therefore, different approaches are explained and used to value the acquisition of Dresser-Rand by Siemens AG. The different approaches are compared to the original price and each other concluding in a comparison and evaluation of the various methods.
Table of Contents
1 Introduction
2 Inorganic Growth: Forms and Strategies of Mergers and Acquisitions
2.1 Organic versus Inorganic Growth
2.2 Forms of Mergers and Acquisitions
2.3 Strategies of Mergers and Acquisitions
3 Mergers and Acquisitions at Siemens AG: Dresser-Rand
4 Business Valuation Methods
4.1 Net Asset Value Methods
4.2 Income Value Methods
4.2.1 Income Approach
4.2.2 Discounted Cash Flow Method: WACC approach
4.3 Market Value Methods
5 Valuation of the Dresser-Rand Acquisition
6 Conclusion
Objectives and Topics
This paper investigates the strategic rationale behind Mergers & Acquisitions (M&A) and evaluates methodologies for determining the fair value of an acquisition target, with a specific focus on Siemens AG’s acquisition of the Dresser-Rand Group Inc.
- Theoretical differentiation between organic and inorganic growth strategies.
- Classification and analysis of various M&A forms and strategic objectives.
- In-depth exploration of business valuation techniques, including Net Asset Value, Income-based, and Market-based approaches.
- Application of selected valuation methods to the specific case of the Dresser-Rand transaction.
Excerpt from the Book
2.1 Organic versus Inorganic Growth
Typically, an enterprise passes different phases of the enterprise life cycle model. It all starts with the foundation of the company, followed by a growth stage and changing to maturity stage. In maturity stage, the business is well-established but the enterprise’s growth is stagnating. After maturity, there is either a stage of decline or crisis, ending in worst-case shutdown or in best-case renewed growth.
Generally, one of the entrepreneur’s or managing board’s long-term goals is to keep the company in the market and establish ongoing growth. There are two strategies ensuring growth:
• Organic or internal growth
• Inorganic or external growth
Organic growth can be defined as growth generated by internal organs of the company. All business units of the value chain, unless they are supporting or primary activities, are involved in generating revenue and responsible to ensure profitability. Therefore, all activities of the value chain are able to increase growth but some particular business units are considered to be more adequate. Especially, investments in the Research and Development (R&D) department or Marketing and Sales can ensure a long-term and lasting surplus in growth. Concluding, organic growth is an investment in enterprise value.
Summary of Chapters
1 Introduction: Introduces the relevance of M&A in modern corporate strategy and outlines the specific research objective regarding the Siemens AG acquisition of Dresser-Rand.
2 Inorganic Growth: Forms and Strategies of Mergers and Acquisitions: Defines the core concepts of corporate growth and categorizes the different strategic motivations and types of mergers and acquisitions.
3 Mergers and Acquisitions at Siemens AG: Dresser-Rand: Provides an overview of Siemens' business portfolio and examines the specific strategic drivers behind the acquisition of Dresser-Rand.
4 Business Valuation Methods: Explains various financial methodologies for determining enterprise value, including Net Asset Value, Income approach, and Market Value methods.
5 Valuation of the Dresser-Rand Acquisition: Applies selected valuation frameworks to the Dresser-Rand deal to evaluate the appropriateness of the purchase price paid by Siemens.
6 Conclusion: Summarizes the strategic importance of M&A and concludes that a multi-method valuation approach is essential for mitigating risks in corporate investments.
Keywords
Mergers and Acquisitions, M&A, Siemens AG, Dresser-Rand, Corporate Growth, Business Valuation, Net Asset Value, Discounted Cash Flow, WACC, Enterprise Value, Synergy, Due Diligence, Inorganic Growth, Market Capitalisation, Strategic Acquisition.
Frequently Asked Questions
What is the primary focus of this paper?
The paper examines the strategic foundations of Mergers & Acquisitions and assesses how companies can evaluate the financial value of an acquisition target.
What are the main thematic areas covered?
The work covers growth strategies, types of M&A, business valuation methodologies, and a detailed case study of the Siemens-Dresser-Rand acquisition.
What is the central research question?
The research aims to determine the strategy behind M&A activities and how to effectively evaluate the purchase price of an acquired company.
Which scientific methods are employed?
The author uses a comparative analytical approach, utilizing various financial valuation models like the Income approach and Market Value multiples to assess a specific corporate transaction.
What does the main body discuss?
The main body defines growth strategies, categorizes M&A forms, details valuation theories (NAV, Income, Market), and performs a quantitative analysis of the Dresser-Rand case.
Which keywords characterize this work?
Key terms include M&A, Business Valuation, Siemens AG, Dresser-Rand, WACC, Synergy, and Enterprise Value.
Why did Siemens acquire Dresser-Rand?
The acquisition was driven by financial, strategic, and reputational motivations, specifically to complete Siemens' portfolio for the oil and gas industry and expand their presence in the US.
How did the valuation results compare to the purchase price?
The study found that the results from different valuation methods varied, but the purchase price paid by Siemens appeared legitimate when evaluated against these methodologies.
What is the role of Due Diligence in this context?
Due Diligence serves as the basis for the decision-making process, ensuring that all risks associated with an acquisition are analyzed before the final purchase.
- Citation du texte
- Florian Beyer (Auteur), 2016, Investing in External Growth, Munich, GRIN Verlag, https://www.grin.com/document/536583
