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 2 years ago
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