With the ongoing uncertainties facing industries around the world, the mergers and acquisitions market is no exception in having to equip to the challenges and changes within this diverse economic environment (Child et al. , 2001). Understanding an organization's market value is critical to making beneficial decisions for the future. The constant quest for growth and the trend toward globalization continue to make expansion a top strategic priority for many corporations.
A merger is defined as the combining of two or more entities into one, through a purchase acquisition or a pooling of interests. An acquisition is to acquire control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly. When one thinks of mergers and acquisition ("M&A"), images of the large deals that are prominently featured in both the financial publications and the general media come to mind.
But for every high profile M&A transaction involving well known, publicly traded companies, there are dozens of lower profile transactions done in the middle-market by privately-held companies in every industry. The process is heavily impacted by overall economic conditions, the conditions present in the industry within which the deal is being done and the markets for senior debt, subordinated debt and private equity. "Acquisition streamlining" means any effort that results in more efficient and effective use of resources to design and develop, or produce quality systems.
This includes ensuring that only necessary and cost-effective requirements are included, at the most appropriate time in the acquisition cycle, in solicitations and resulting contracts for the design, development, and production of new systems, or for modifications to existing systems that involve redesign of systems or subsystems. Mergers can benefit many companies through cost savings when they are experiencing difficulties paying their debts or making a profit. In todays society, many companies have undergone mergers in order to save their company's reputation.
"Privatization has been an important aspect of M&A activity, with telecommunications and electrical services being the source of most cross-border M&A transactions in the last few years. Most acquisitions are not cash transactions but stock transfers and made possible by the historic shift to equity financing even in emerging markets and in an apparent secular shift upward in price-to-earnings ratios in existing and emerging stock markets" (http://www. fidelitynews. com).
Another important concept to consider when discussing merging or acquiring another company is the synergy and morale issues that come with merger. In order to have a successful acquisition, the two companies must come together both financially, technically, and personally. If the information technologies do not align and will not fit together, the merger will be unsuccessful. Likewise, if the people working for both organizations are not comfortable with the deal or loss of jobs is abundant, then upper management could have a severe morale issue to contend with.
Mergers and acquisitions do not just depend on whether it makes sense financially, but it also depends on the soft side of the businesses. Managing International Acquisitions Key Financial Challenges Properly interpreting macroeconomic indicators and other financial related data serves as a tool for evaluating a company for acquisition. Additionally, understanding the intrinsic and extrinsic factors that influence profitably (e. g. : culture, politics, debt, governments et cetera) is paramount in successfully completing an international acquisition (Child, Pitkethly, and Faulkner, 2001).
As emphasized in the Managing International Acquisitions simulation, managing international acquisitions can be both financially challenging and rewarding. Successfully managing the acquisitions process and the respective decisions can lead to profitability and increased shareholder value; whereas in contrast, despite the best management efforts, certain factors can present key financial challenges to global companies and decrease profitability.
With influences ranging from national culture and related management styles; legal, tax and accounting considerations; and organizational behavior issues and other related factors that are present when a merger or acquisition takes place, companies must also contend with ongoing changes in government and corporate policy; global and local economies; and even technology based resources (Child et al. , 2001). The before mentioned challenges were all inherently encountered by First South Pacific Bank (FSPB) in the simulation.
Global Expansion and International Acquisitions First South Pacific Bank (FSPB) faced financial challenges when seeking to expand its operations into an Asian marketplace by investing in a financial institution in Kitanesia. With strong operations in America and Europe, FSPB realized that it had neglected the Asian markets and that acquiring a local bank in Kitanesia could help them expand. FSPB found that merging with an existing company or by investing in a local institution or localized marketplace is often the preferred route.
As illustrated in the concluding statements of the simulation, evaluating potential acquisition targets based on their strategic merit must be completed prior to carrying out a detailed financial analysis which could be a costly procedure. General Electric One of the key financial challenges for many companies seeking to acquire another company is the allocation of resources towards the acquisition. GE, like many other Fortune 500 companies, has had to face issues and challenges when expanding globally.
The 2004 acquisition of Amersham, a global leader in diagnostic imaging agents and in life sciences, significantly advanced General Electric's strategy of addressing high-growth, high-technology segments of the global healthcare industry (http://www. amersham. com/news/item). Amersham's imaging agents and biosciences businesses will add new, high-technology platforms to GE Medical's diagnostic imaging, healthcare services and information technology businesses, positioning GE Medical to participate in exciting new developments in molecular imaging and personalized medicine.
According to Sir William Castell, Chief Executive Officer of Amersham, the combination of these businesses represented good value for shareholders and was good news for customers and employees (http://www. amersham. com/news/item). Although strategic and seemingly successful, skeptics or realists could argue similar mergers between an American company and a foreign company could also have been problematic. Similar to FSPB, GE had to strategically plan the acquisition/merger by performing due diligence.
According to Investopedia.com due diligence is an investigation or audit of a potential investment that serves to confirm all material facts in regards to a sale (http://www. investopedia. com/terms). Due diligence is essentially a way of preventing unnecessary harm to either party, or the entity involved, in a transaction. Acquisitions and mergers, whether local or international, are usually based upon the results of a due diligence analysis. Companies such as GE and FSPB perform due diligence analysis to help avoid or deter problems with acquiring or merging with another company.