Business Analysis : Mergers And Acquisitions Essay

This paper is about two companies that went through same type of change (merger and acquisition) with different outcomes. Merger is combination of two or more companies in which the assets and liabilities of the selling firms are absorbed by the buying firm. Although the buying firm may be a considerably different organization after the merger, it retains its original identity while Acquisition is the purchase of an asset or an entire company (Sherman, A. J., & Hart, M. A. (2005). Chapter 1: The Basics of Mergers and Acquisitions. In, Mergers & Acquisitions from A to Z. American Management Association International.).

In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of the consolidation process. Then we present the acquisition method of accounting for business combinations followed by limited coverage of the purchase method and pooling of interests provided in a separate sections.

Mergers and acquisitions have become a growing trend for companies to inorganically grow a business within its particular industry. There are many goals that companies may be looking to achieve by doing this, but the main reason is to guarantee long-term and profitable growth for their business. Companies have to keep up with a rapidly increasing global market and increased competition. With the struggle for competitive advantage becoming stronger and stronger, it is almost essential to achieve these mergers. Through research I will attempt to dissect the best practices for achieving merger success.

The goals of mergers range from reducing the number of competitors, to access of new products (Belcourt et al., p 330). Statistics show that 80% of new product developments fail (Howells, 2011), partly due to challenges and conflicts with human resources functions. Mergers and acquisitions are the fastest way to enter new markets. “It is estimated that 1/3 of all mergers fail due to faulty integration of diverse operations and cultures,” (Chhinzer, 2013). Therefore, the success of a merger or acquisition lies in the ability to guide, motivate, retain, and effectively use

Vertical Mergers: A vertical merger is done with an aim to combine two companies that are in the same value chain of producing the same good and service, but the only difference is the stage of production at which they are operating. For example, if a clothing store takes over a textile factory, this would be termed as vertical merger, since the industry is same, i.e. clothing, but the stage of production is different: one firm is works in territory sector, while the other works in secondary sector. These kinds of merger are usually undertaken to secure supply of essential goods, and avoid disruption in supply, since in the case of our example, the clothing store would be rest assured that clothes will be provided by the textile factory. It is also done to restrict supply to competitors, hence a greater market share, revenues and profits. Vertical mergers also offer cost saving and a higher margin of profit, since manufacturer’s share is

Vertical Merger: two companies that make parts for a finished good combine - A vertical merger occurs when two companies previously selling to or buying from each other combine under one ownership. The main objective of a

Mergers and acquisition plays an important role in survival/vitalization of a corporation in today’s market. It continues to be a breakthrough strategy for improving innovation of a company’s product or services, market share, share price etc.

Many organizations will either experience a merger or acquisition to try to absorb the costs during unstable market times. Mergers and acquisitions to employee’s usual mean staff reductions and major changes, especially for an acquisition which, is when another company purchases a company and becomes a new company. (McClure, 2016)

Careful thinking about what it means for an acquisition to succeed, coupled with an analysis of why deals fail, can lead to some practical advice for managers, thus helping them to develop a more refined view. More specifically, in order for acquisitions to pay off, they ought to pass four tests. I describe the tests below, showing how each offers a way to head off common sources of merger malfunction.

Due to the financial downturn and the emergence of new devices in the global handset

With each passing day the health care industry is experiencing an increase in participants due to its perfect competition nature. Due to this increase the industry participants, the industry has vicious competition which in effect leads to an increased in the cost of doing business. Smaller companies within the industry are hard hit by this competition due to their limited resources and therefore find it hard to remain relevant within the industry. Due to the looming threat of closure and liquidation, small companies must explore various strategies they may use to remain in operation. On the other hand large hospitals that are looking to eliminate competition and at the same time improve on their market share and in effect their revenues, merge with those that are struggling with low profitability. These mergers are beneficial to the smaller struggling companies since they provide increased savings on company overheads and availability of specialized machinery. Growth is also expected due to the increased market share as well as the good will already established by the large company. Contrary to popular opinion, mergers are not always between a large and a small company. In the healthcare industry two small companies may come together in order to pool their resources together and be in a position to compete against the large companies.

As with IPOs, there are strengths, and weaknesses associated with acquisitions. Obviously, those strengths and weaknesses must be evaluated thoroughly prior to making the decision to seek an acquisition. Opportunities, although mainly positive, are also essential considerations. The opportunities associated with acquisitions are readily apparent and correspond with the strengths of this option for expansion. Acquisitions provide important opportunities for increased shareholder value, brand recognition, and profitability, in addition to certain tax benefits.

In 2007, the worldwide volume announced that mergers and acquisitions (M&As) had reached more than $4.74 trillion according to The Wall Street Journal. Despite their persistent acceptance, M&As remain highly debatable (Muehlfeld, Rao & Van Witteloostuijn, 2012). The constant debate about post acquisition performance repercussions of M&As (Rooney, Mandeville, Kastelle, 2013) points to important questions as to whether and under what conditions organizations learn from past acquisition experience. However, outside of operational backdrops, the effects of experience on learning as well as their outcomes have proved more intangible. Multifaceted environments as observed in typical corporate level executive and strategic activities prevent reinforced learning and diminish the identification between current actions and observed outcomes (Finkelstein S, Haleblian, 2002). Thus, it can take years to witness effective wisdom obtained regarding mergers between large organizations (Muehlfeld, Rao & Van Witteloostuijn, 2012).

The main goal of a business combination is business expansion. The process of two or more companies coming together under a common control in order to expand is known as business combination. There are two methods that a company can expand, which are by internal expansion and external expansion. First, internal expansion is the ability to increase business operations without any outside activities, such as advertising and marketing. Secondly, external expansion is when one company overtakes another company in order to be more successful. External expansion can be achieved through vertical integration, horizontal integration, or through a

Mergers and Acquisitions (M&A) are an established form of expansion for medium to large size companies, with the intention of creating more value by for example increasing competitiveness and transferring technology and innovation. In other words, it is assumed that “the combined company will have greater value than the two companies alone” (Marks & Mirvis, 1992, p. 69), It can even be argued that, with the globalization of business, M&As are needed to keep up (Hitt, Franklin & Zhu, 2006). Unfortunately, the failure rate in M&As is extremely high with 70% of worldwide M&A failing to increase stakeholder value (Mohibullah, 2009) and over 90% of European M&A failing to reach financial objectives (Hay Group. 2007). Although there may be many different reasons for an M&A not succeeding, failure is most often attributed to the incompatibility of the two (corporate) cultures (Uljin, Duyster & Fevre, 2010). In the last couple of decades, M&A has switched from being mostly a domestic phenomenon to an international phenomenon, initially caused by the integration of the European Union in the 90s, followed by a rise in “the international expansion of emerging market multinationals … be it by Chinese or Indian firms” (Reynolds & Teerikangas, 2016, p. 42), adding a new dimension to the cultural differences; national cultures. Consequently, with this rise in the number of cross-border M&A also came an increased interest in the effect of national cultural differences between