Question

In: Accounting

ou recently hired a young MBA who is advising you that you should grow more aggressively...

ou recently hired a young MBA who is advising you that you should grow more aggressively and who is suggesting that you should do so by acquiring other smaller companies. Your cookware and tableware importing business has been quite successful, but you are not sure that this new employee’s plan to acquire a series of cooking/kitchenware stores makes sense. What issues would you raise in discussing this proposal?

Solutions

Expert Solution

It is a case of mergers and acquisitions.
The drivers of a merger/acquisition are
1 Synergies are the core objective
Value of Firm (AB) >Value of Firm A + Value of Firm B
The combined value of 2 firms is more than their individual value.
Synergy= Value of Acquirer+ Stand Alone value of target+ Value of synergy = Combined Value
2 Diversification
3 Growth
4 Consolidation of Production Capacities and increasing market power
Issues of a merger/acquisition are
1 Paying too Higher purchasing Price for Acquisition of these small companies: It could be due to Information Asymmetry
2 Problems concerning integration after M&A: The integration process can be very complicated and difficult when there are differences between the acquirer and the target, especially concerning overseas markets, such as in corporate cultures, work ethics, and management styles, stage of development, distribution
3 Loss of talented employees and valuable clients: It is found that one out of four top performers will leave a company within 3 months of the announcement of an event involving a major change within an organisation. 47% of senior managers in the acquired company leave within the first year. Its concluded that all companies need to remember is that the people, who produce profits, represent the company and establish rapport with the customers and are ultimately the ones who will make the combined company succeed.
Counter Measures
Estalishing Competent Corporate Governance
Defining the M & A Targets, Formulate the M & A Strategy and iIts Plan
Due Diligence: Detailed Investigation for the Target Enterprise and Selecting the Right M&A Target

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

As a recently hired MBA intern, you are working in a consulting capacity to provide an...
As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $4,640,560 Cost of sales (all variable) $2,679,008 Gross Margin $1,961,553 Operating expenses: Variable $478,117 Fixed $367,521 Total operating expenses: $845,638 Administative expenses (all fixed) $970,725 Net operating income $145,190 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average...
As a recently hired MBA intern, you are working in a consulting capacity to provide an...
As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average...
As a recently hired MBA intern, you are working in a consulting capacity to provide an...
As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average...
As a recently hired MBA intern, you are working in a consulting capacity to provide an...
As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average...
As a recently hired MBA intern, you are working in a consulting capacity to provide an...
As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average...
You are a business consultant who has just been hired by a young entrepreneur who is...
You are a business consultant who has just been hired by a young entrepreneur who is beginning a new business. The entrepreneur plans to start a privately owned business (i.e. grocery, clothing, hairdresser, auto repair, cleaning service, etc.). Your client is uncertain where to locate the business and is looking for your professional advice. Your client's initial thoughts are to establish sales of $200,000 the first year and grow the business at an average annual rate of 20% each year...
Y ou have recently been hired by Layton Motors, Inc. (LMI), in its relatively new treasury...
Y ou have recently been hired by Layton Motors, Inc. (LMI), in its relatively new treasury management department. LMI was founded eight years ago by Rachel Layton. Rachel found a method to manufacture a cheaper battery that will hold a larger charge, giving a car powered by the battery a range of 700 miles before requiring a recharge. The cars manufactured by LMI are midsized and carry a price that allows the company to compete with other mainstream auto manufacturers....
You are a financial consultant who specializes in fixed income investments. You have been recently hired...
You are a financial consultant who specializes in fixed income investments. You have been recently hired to advise Lovett, Inc., on their bond portfolio. Lovett is risk averse with respect to its bond investments. Also, Lovett has told you their intent is to hold their fixed in investments to maturity. Lovett has three U.S. treasury bonds that they are considering. Bond Type Par Value Coupon Yield to Maturity Maturity (years) A Zero coupon $1,000 8% 10 B Coupon $1,000 12%...
Assume that you are a program director who has recently hired a university-based researcher to evaluate...
Assume that you are a program director who has recently hired a university-based researcher to evaluate your program. This was done because a major foundation has expressed an interest in financially supporting your program, but only if it proves to be “evidence-based.” What might be your ethical concerns? How might you ensure that these are addressed while also endorsing rigorous scientific methods?
1. You are advising a group of investors who are considering the purchase of a shopping...
1. You are advising a group of investors who are considering the purchase of a shopping center complex. They would like to finance 75% of the purchase price. A loan has been offered to them with the following terms: The contract interest rate is 10% and will be amortized with monthly payments over 25 years. The loan has a lockout provision that prevents it from being repaid before year 5. The property is expected to cost $5 million. NOI is...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT