MBA 622 - Strategy I - Growth by Acquisition Strategy


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This case was presented in Fall 2010 and revolves around a critical point in the international cement market in 2000. In this presentation, CEMEX's competitive advantage and global acquisition strategy are examined in the cutthroat competitive cement market.

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  • CHECK ANIMATIONCHECK TRENDS OF SOCIOECONOMIC TRENDS Strategic Challenge Analysis Alternative Strategic Directions Recommendation Brief Implementation Plan
  • - Talk about scope and speed
  • Should this go after slide on where opportunities lie (key countries) – we could show that CEMEX is somewhat strong in Caribbean and Central America, but is most certainly lacking in sub-sahara and asian markets.
  • Should this go after slide on where opportunities lie (key countries) – we could show that CEMEX is somewhat strong in Caribbean and Central America, but is most certainly lacking in sub-sahara and asian markets.
  • Shift momentum in competitive market
  • Indonesia has long-run potentialEgypt has high demand (11%). However, fragmented and regulatory is cumbersomeWHERE TO TALK ABOUT FUTURE OPPORTUNITIES
  • PMI Team to facilitate assimilationImpose CEMEX culture and standardsIntegration = reduced manpower, selection of mgmtUp to 50% PMI members remained as expats
  • PMI Team to facilitate assimilationImpose CEMEX culture and standardsIntegration = reduced manpower, selection of mgmtUp to 50% PMI members remained as expats
  • Brings value by allowing firm to exploit opportunities and neutralize external threats Integrated expansion process appears to be used by few firms CEMEX’’s integrated expansion process is home grown and cannot be replicated Selection, due diligence and integration are not substitutable in acquisItion process
  • The higher the EBITDA margin, the less operating expenses eat into a company's bottom line, leading to a more profitable operation.
  • CEMEX’s debt-to-total capital ratio is high, but will not hinder expansion
  • 2008 - $243K - Loss2007 - $53K - Gain2006 - $22K - Gain2005 - $52K - Gain2004 - $52K - Gain
  • Current acquisition strategy has proven success.Current acquisition strategy is a sustainable competitive advantage.Tactical adjustments will allow CEMEX to adapt to the current competitive environment.1) The acquisition of Blue Circle by Lafarge is potential but likely to happen in the coming years2) The biggest threat from them is their finacing capabilities, which will likely allow them to expand more quickly than CEMEX. It will also allow them to get a strong hold in Asia and expand within.3) The acquisition will happen whether CEMEX likes it or not, so the BEST thing CEMEX can do is leverage it's competitive advantage to ensure timely and successful expansion (particularly) PMI, so that they can continue to expand and grow quickly and secure capacity shares in key markets4) The flexibility component (to proactively address cultural/language issues) may add several months to the PMI process in certain countries, but it will not slow CEMEX's expansion. Au contraire, it will ensure that the company can get more returns from each acquisition and actually allow CEMEX to continue to grow quickly.5) As for Lafarge/Blue Circle's strong hold in Asia, it is imperative that CEMEX continue to work with regulatory bodies in Indonesia, and follow through with potential acquisitions in India. It is strongly believed that their strong expansion process (at all levels), will result in more successful Asian acquisitions and allow them to grow and expand quickly.
  • MBA 622 - Strategy I - Growth by Acquisition Strategy

    1. 1. Building the Future™: <br />Conquer the World<br />Cemcordia Consulting<br />Nelly Abilmouna<br />Mark Bundang<br />Ron Cohen<br />Sarah Dupuis<br />Laura Gibson<br />
    2. 2. Strategic challenge<br />
    3. 3. StrategicChallenge<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Implementation<br />CEMEX must determine whether its current acquisition strategy is sustainable. <br />
    4. 4. CURRENT SITUATION<br />
    5. 5. The traditional international expansion strategy among cement majors is shifting<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Traditionally:<br />Recently:<br />Acquire regional cement firms<br />Attempt to acquire another major<br />
    6. 6. Lafarge and Holderbank Pose as Largest Competitive Threats<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
    7. 7. Lafarge and Holderbank already have large capacity shares in several high growth Asian markets and compete in many of the same key markets as CEMEX<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br /><ul><li> Poland
    8. 8. France
    9. 9. Germany
    10. 10. Italy
    11. 11. Spain</li></ul>L<br />H<br />L<br />H<br />L<br />H<br />L<br /><ul><li>France
    12. 12. Germany
    13. 13. Italy
    14. 14. Spain</li></ul>L<br />L<br />H<br />H<br />L<br />L<br />H<br />H<br />L<br />H<br />L<br />H<br />L<br />L<br />H<br />L<br />H<br />L<br />L<br />H<br />
    15. 15. Heidelberger, Italcementi and Blue Circle are smaller players and are not threatening in current CEMEX markets<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
    16. 16. Heidelberger, Italcementi and Blue Circle are well entrenched in developed markets, but not in developing markets <br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br /><ul><li> Poland
    17. 17. France
    18. 18. Germany
    19. 19. UK</li></ul>E<br />I<br />B<br />E<br />I<br />B<br />B<br /><ul><li> France
    20. 20. Italy
    21. 21. Spain</li></ul>E<br />I<br />B<br />E<br />I<br />I<br /><ul><li> UK</li></ul>B<br />I<br />B<br />B<br />E<br />
    22. 22. Allows firm to enter and capture large capacity shares in key markets<br />Builds synergies<br />Gives them greater financing capabilities<br />Consolidation among the cement majors threatens CEMEX’s pool of potential markets<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
    23. 23. The international cement market is moderately to highly competitive<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />* Capital-intense industry<br />* Competitors set restraints<br />* Some use of wood or steel in developing countries<br /><ul><li> Undifferentiated product
    24. 24. Little branding
    25. 25. Low switching costs</li></ul>* Firms own raw material quarries<br /><ul><li> Few large international players, racing to enter new markets
    26. 26. Within market, many regional competitors
    27. 27. Attempts to collude and to secure protection from imports
    28. 28. Hostile bid between Lafarge and Blue Circle</li></li></ul><li>INTERNAL ASSESSMENT<br />
    29. 29. CEMEX has grown to become the 3rd largest cement company in the world and the largest international cement trader<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
    30. 30. CEMEX has Strong Acquisition Process and Technological Capabilities<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />14<br />
    31. 31. CEMEX is well entrenched in several high demand markets, but must expand into key markets to sustain growth<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br /> Asia<br />Caribbean<br />Middle East<br />Sub-Saharan Africa<br />Central America<br />15<br />
    32. 32. Resources are aligned to pursue geographical diversification, gearing CEMEX towards successful acquisitions<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br /><ul><li>Team of 10 (50% prior DD experience)
    33. 33. Standard, thorough DD methodology
    34. 34. Standard report to VP, Finance & Planning
    35. 35. Controlling stakes
    36. 36. Potential for company and market restructuring
    37. 37. PMI Team to facilitate assimilation
    38. 38. Integration: reduced manpower, selection of mgmt
    39. 39. Monthly Cadence : Communication between regional director, country president, CEO Zambrano</li></li></ul><li>This acquisition process gives CEMEX its competitive advantage<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
    40. 40. CEMEX’s expansion process is a sustainable competitive advantage<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Their expansion process is well codified and standardized to allow for efficient, effective and profitable acquisitions<br />
    41. 41. Post-merger integration may be lengthened<br />Target returns may not be achieved or may be delayed<br />Example: Recent acquisitions of Egypt and Indonesia:<br />Prayer breaks<br />English not prevalent in some countries<br />PMI is limited in its ability to address language and cultural barriers in new markets<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
    42. 42. FINANCIAL ANALYSIS<br />
    43. 43. CEMEX’s acquisition capability has proven to be a competitive advantage over the other cement majors.<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />* This is an approximation since EBIT was used in calculation instead of NI.<br />** Total franchise value = sum of franchise value in markets of acquisition.<br />
    44. 44. CEMEX comparatively high EBITDA is an indication of the firm’s strong competitive advantage<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />CEMEX’s operations are more profitable than the other majors<br />
    45. 45. CEMEX should not be concerned about their interest coverage<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />3.6<br />CEMEX’s Net Debt/EBITDA ratio is the highest and equal to Holderbank’s ratio<br />
    46. 46. Analysis: Key Takeaways<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />CEMEX’s expansion process is a sustainable competitive advantage<br />Lafarge’s pending acquisition of Blue Circle will significantly alter the competitive landscape<br />CEMEX’s debt-to-total capital ratio is high, but will not hinder expansion<br />Current PMI process does not allow CEMEX to easily address cultural and language barriers<br />
    47. 47. ALTERNATIVE STRATEGIc directions<br />
    48. 48. Key Considerations for Strategic Directions<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />“CEMEX must determine whether its current expansion strategy through acquisition is sustainable”. <br />Strategic direction must address: <br /><ul><li>Long-term profitability
    49. 49. Leveraging competitive advantage
    50. 50. Flexibility to adapt to country culture
    51. 51. Timely solution to market urgency
    52. 52. Minimal Financial risk
    53. 53. Ease of Implementation and Feasibility</li></li></ul><li>Alternative Strategic Directions<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
    54. 54. Pros<br />Fast way to expand into new markets <br />Good way to make use of their CA<br />Better position to face changing global market<br />Cons<br /><ul><li>The size of the corporation might be a challenge for their PMI process
    55. 55. First time CEMEX would acquire firm in many markets, so analysis is more complex
    56. 56. Possibility of corporate culture clash due to bigger target
    57. 57. Might encounter price competition form another major trying to do the same thing</li></ul>1 – Acquisition of a Cement Major<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
    58. 58. Pros<br />Opportunity to complement the power of CEMEX’s competitive advantage with that(those) of another Major<br />Opportunity to learn about the other Major’s competitive advantage(s)<br />CEMEX can benefit from the other Major’s ability to adapt to foreign country cultures where they are established<br />Cons<br />Threat of Major “stealing” competitive advantage<br />Takes a long time to implement (legal contracts, resource selection, management structure, etc.)<br />Difficult to implement (legal contracts, resource selection, management structure, etc.)<br />2 – Strategic Alliance with a Cement Major<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
    59. 59. Pros<br />Significant success achieved with current expansion process <br />Can leverage competitive advantage<br />Minimal financial risk<br />Cons<br />Changing industry landscape may leave CEMEX vulnerable to mergers among competitors.<br />Debt problems may recur if acquisitions are made to quickly.<br />Culture and language issues are not directly addressed<br />3 – Status Quo<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
    60. 60. The firm should maintain its current acquisition strategy<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
    61. 61. recommendation<br />
    62. 62. <ul><li>Flexibility in CEMEX’s PMI component of the expansion process will reduce cultural challenges
    63. 63. Cultural sensitivity courses could be offered as part of PMI process
    64. 64. Focus expansion in Asian market to address increasing competition and to secure capacity shares
    65. 65. Emphasis on branding in the retail market will help CEMEX gain global exposure and reduce risk from cyclicality
    66. 66. Increase marketing efforts in retail market, particularly in developed markets
    67. 67. Promote CEMEX brand in newly acquired market</li></ul>Tactical changes to CEMEX’s current strategy<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
    68. 68. Rationale for Status Quo<br />Recommendation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Implementation<br />Ensure timely and successful expansion<br />CEMEX can address increased Asian competition<br />Increases branding and diversifies revenue streams<br />Maximizes returns from each acquisition and allows CEMEX to grow quickly<br />
    69. 69. Implementation plan<br />
    70. 70. The US, Japan and India are markets with both high capacity and high demand<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
    71. 71. Firms in many Asian markets have low valuations compared to firms in North America or Western Europe<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
    72. 72. Future acquisitions are strategic and allow CEMEX to target key markets<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Asia<br />JP<br />Africa<br />Latin America and Caribbean<br />SE Asia<br />
    73. 73. CEMEX should prioritize acquisitions in Asia and Portugal<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br /><ul><li> Addresses increasing competition
    74. 74. Secure capacity shares
    75. 75. High growth
    76. 76. Low firm valuations
    77. 77. Consolidation around Mediterranean
    78. 78. Greater access to Brazil and African markets
    79. 79. Large market size
    80. 80. Technological kilns will be barrier to expand within
    81. 81. High demand and capacity
    82. 82. Low firm valuations
    83. 83. Very competitive
    84. 84. Dependent on repealing countervailing duty
    85. 85. Large market
    86. 86. Retail opportunities
    87. 87. Price exceed capacity valuations </li></li></ul><li>CONCLUSION<br />
    88. 88. Conclusion<br />Address cultural and language barriers<br />Current Acquisition Strategy with tactical adjustments<br />Enter retail market and increase brand awareness<br />Leverage and strengthen competitive advantage<br />Long-term growth and profitability<br />
    89. 89. Thank you!<br />