Factors that Govern the Merger and Acquisitions Deals

Factors that Govern the Merger and Acquisitions Deals - COMMERCE 2FB3 Takeovers and acquisitions are huge managerial actions implemented to accomplish various organizational goals. Primary strategic motivations behind M&A deals: ● Growth and Expansion: They enter in M&A searches to gain new growth to their company and increase their market share. - This can refer to a geographic market, product, or increasing the market share in the existing markets the firm operates in. ● Synergies: M&A can result in synergies by which the value of the synergized organization is greater compared to the value of the independent companies. - Such synergies may be operational, that is, they can produce cost savings and efficiency gains, or financial, such as tax advantages, higher debt capacity. ● Diversification: Basically M&As allow companies to expand the lines of products and services, introducing risk diversification and thus minimizing the dependence on a particular market. One of the most complex issues arising in companies’ management is the process of M&As integration of two different companies. Some of the key challenges include: 1. Cultural Differences: Corporate culture differences can translate to conflict, confusion and poor company cohesiveness of the employees. 2. Systems and Processes: He said the ability to merge multiple IT systems, processes, and operational procedures can be difficult and expensive. 3. Redundancies and Layoffs: M&A lead to organizational mergers which entail the elimination of some positions, this results to layoffs which may cause demotivation among the employees and bad publicity. 4. Regulatory and Legal Issues: Of course, the specifics of the legislation differ and it may also differ as to the jurisdiction they belong to – this is especially true for M&A activities. Main Risks and Drivers for Change: M&A transactions are usually considered as being high risk and they do not necessarily guarantee the intended positive results. Some potential pitfalls and success factors:Here are some potential pitfalls and success factors: - Overvaluation: In the acquisition process, excessive spending on the acquisition of stock in the target firm may atone times push the bidder to the limits of his financial capabilities and lower returns on investments. - Poor Due Diligence: Lack of research and assessment of the target firm can lead to undetected risks and problems of integration. - Lack of Clear Strategy: This is because when there is lack of clear strategic vision, the merged entity will end up facing a lot of difficulty in the realization of its goals and objectives as well as synergies. Success Factors: 1. Thorough Due Diligence: Consulting experts to carry out a detailed research on the financial performance of the target company together with other operational aspects and risks associated with it. 2. Strong Leadership: That the process of integration would be led by leaders with prior experience and adequate competencies in this area. Actual Examples of Mega M&A Deals and Activity Disney and Pixar: In the year 2006, The Walt Disney Company bought Pixar Animation Studios for $7. 4 billion. - The acquisition proved very strategic for Disney in the sense that it gave the company’s animation division the much needed shot in the arm in form of new technology as well as human resource from Pixar. - It produced good animated features and attained impressive economic profits to Disney. Amazon and Whole Foods: In June 2017, Amazon came into a bidding war for Whole Foods Market by purchasing it for $13. 7 billion. - It was a smart strategic move for Amazon as it unlocked a fresh market for grocery retail for Amazon, - plus Whole Foods’ physical stores could come in handy for much of Amazon’s distribution and supply chain processes. This merger have increased the market reach Amazon as well as widening its product portfolio. Facebook and Instagram: Instagram was acquired by Facebook in for $1 billion back in 2012. 1. This proved to be beneficial for Facebook which not only obtained a wider social media offering and a younger audience to boot. 2. Overall, Instagram is rather popular and helpful for Facebook to boost its user engagement and the company’s overall advertising income. Daimler-Benz and Chrysler: In the year 1998 two car giants, Daimler-Benz AG of Germany and Chrysler Corporation U. S. A announced their $36 billion merger to form a new company called Daimler Chrysler AG. - there were major cultural and operational issues which led to the breakdown of merger and it was decided to demerge in the year 2007.