Mergers And Acquisitions: Types, Reasons, Financing - Essay.

“Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets through various types of financial transactions. M&A can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. In all cases, two companies are involved. The term M&A also refers to the department that deals with mergers and acquisitions”

Requirements

1.Critically analyse five reasons why companies decide to acquire other companies.

2. Identify and discuss the three types of acquisitions and provide an example of each to demonstrate your understanding.

3. Advise in detail the three main ways a company might finance an acquisition, taking into account the impact on the shareholders 10%

4. From the case studies you have researched explain what characteristics created a successful Merger and Acquisition and what factors have lead to unsuccessful Merger and Acquisitions

5. Describe and justify how would you classify the acquisition of the mobile telecommunications companies Three and O2 networks 

Reasons why companies decide to acquire other companies

The assessment aims in depicting the measures of acquisition, which might help in understanding the level of acquisitions conducted by companies. In addition, from the evaluation it has mainly indicated that there are three types of accusations, which are conducted by companies. Furthermore, financing part of the acquisition is also depicted in the assessment, which relevantly helps in understanding the level of finances, which the company could use for completing the acquisition process. Lastly, adequate factors for successful and unsuccessful merger and acquisition is also depicted in the assessment. In addition, the classification of the acquisition of mobile telecommunication companies are relevantly depicted.

1. Critically analysing five reasons why companies decide to acquire other companies:

There are many reasons behind the acquisition process conducted by companies, which are depicted as follows.

Synergy:

Synergy is the main aims of the companies conducting merger or acquisition, as it empowers the management to increase performance of the organisation and reduce cost of productivity. In addition, from the evaluation it could be detected that companies having the highest synergies are relevantly conducting merger and acquisitions, which helps in improving their operational capability (Greve and Man Zhang 2017).

Diversification or sharpening the business focus:

The need for diversification or sharpening of business focus mainly helps in improving the level of operations for the organisation conducing merger or acquisitions. In addition, from the evaluation it also indicated that companies for reducing the impact of industry competition in their profit mainly use diversification by merging or acquiring different businesses. On the other hand, the sharpening of business focus is mainly conducted with the help of merger or acquisition, as improving in current operations of the company is conducted by merging the operations of the two companies.

Growth:

The third main reason behind the occurrence of merger or acquisition is the non-abbreviation of growth, which is needed by both the companies. The companies by using the merger or acquisition process is able to maintain high growth, as additional revenue are added and increment in growth in relevantly high. Continuous mergers of the companies help in reducing competition and increases the change of monopoly, which allows the organisation to obtain immense growth from its operations (Brueller, Carmeli and Markman 2018).

Increment in supply chain pricing power:

The companies use the merger or acquisition process on suppliers and distributors, as it helps them to improve their costing structure and reduce the excessive expenses, which was been conducted to acquire the required level of raw materials. In addition, from the evaluation it could be detected that companies with the Merger or Acquisition process is able to improve their current financial ability and is able to produce goods at relatively cheaper rate than it could previously conduct.

Types of acquisitions

Eliminating the competition:

Companies mainly conduct the Merger or Acquisition process to reduce the competition in the current sector, as reduction in competition will eventually help in improving the level of return and profits from operations. The process is an effective measure used by companies to increase their market share and acquire additional customers which could increase their profits in the long run (Zhang et al. 2015).

2. Identifying and discussing the three types of acquisitions, while demonstrating the example for each type:

There are relatively three different types of acquisitions, which are depicted as follows.

Talent Acquisition:

The talent acquisition process is mainly conducted by the organisation for acquiring the engineers and designers of the firms, which could help in improving their current operational capability. In addition, from the evaluation it could be identified that companies mainly conduct the talent acquisition system to improve the level of profits from operations. Companies like Apple Inc, Microsoft and IBM mainly use the Talent acquisition system in acquiring the required engineers and designers for improving their current production capability (Holburn and Vanden 2014).

Technology Acquisition:

From the evaluation it could also be identified that technology acquisition is a process when a company aims in acquiring additional technology along with the team operating on it. In addition, from the evaluation it could also be depicted that technological acquisition is relevantly costly, as the company is acquiring both technology and individuals working on the process. The technology acquisition process is mainly considered by companies who have the objective of buy vs built. The company relevantly pay for not only the building process of the technology but also the opportunity cost to the acquired company. For example, Facebook has used the talent acquisition measure, while acquiring WhatsApp, where it not only acquired the overall technology but also bought the team operating the process. This mainly allowed Facebook to improve its technological sphere, while obtaining higher market share in the current industry.

Business Acquisition:

The business acquisition process is mainly conducted on the basis of finance, where the financial composition and non-financial composition of the organisation is evaluated. In addition, the highly defensible assets are mainly evaluated by the organisation, while conducting the business acquisition process. On the major business acquisition process that is conducted in real business world is the acquisition of YouTube by Google. Google mainly acquired YouTube when the company was having minimum revenue, while the actual network was relevantly vast. This motivated google to acquire YouTube and increase its market share within the industry, regardless of the low revenues generated by the organisation (Tanriverdi and Bulent 2015).

Financing options for acquisitions

3. Advising in details the three main ways a company might finance an acquisition considering the impact on shareholders:

Companies use different types of finance measure, while conducting the acquisition process, as it helps them to maintain the level of cash within the organisation and acquire the required company to improve its current operations. The three main ways in which the organisations could use finance measures during the acquisition process are depicted as follows.

Loan secured from Fixed assets:

Loan secured from fixed assets is one of the major methods, which are used by organisations, while conducting the acquisition process, as they need hard cash that can be obtained quickly from a bank loan. This process has been used extensively by the organisations who conduct acquisition for acquiring additional technology or business to increase its operational and profit generation capability. Furthermore, from the evaluation it is also detected that the fixed asset loan process is the quickest way for acquiring the required loan, as the bank has collateral for any defaults, which could be conducted by the loan receiver. However, the interest rate on the loans would eventually increase cash outflow, as interest rate would eventually reduce income of the organisation (Marpe et al. 2015).

Raising additional Equity:

The second alternative, which could be used by organisation, while conducting the acquisition process is raising additional equity. The issue of additional equity will mainly need extra time for the organisation, while the cash availability for the acquisition process will take time, as the company needs to conduct the share issue and acquire the required capital after the completion of the event. The issue of additional shares will require time, and extensive planning before acquiring the required company (Kim, Zheng and Arendt 2018).

Bond Issue:

The third measure the issue of bond or debt, which could be conducted by the company to acquire the additional funds for the acquisition, as quickly as possible. This process could eventually increase the debt accumulation, which is conducted by the company and increase the chance of extensive interest payments. The bond issue requires additional measures, such as the appointment of underwriter, who will be responsible to acquire the credit rating and selling of the bond for the organisation (Boschma and Hartog 2014).

4. Identifying the characteristics creating a successful Merger and Acquisition, while detecting the factors that lead to unsuccessful merger and acquisition:

There are different characteristics for a successful merger and acquisition, which are depicted as follows.

Case studies showcasing successful and unsuccessful M&A

Defined Goals:

Defining the goals before the acquisition and merger process mainly helps in successfully completing the process, as both the company’s goals are same. The fulfilment of some types of goals such as expanding theory, boosting sales, acquiring patents, and entering new market. The fulfilment of the defined goals might help in improving the level of returns, which could be generated from the operations of the organisation.

Transparency:

The second most viable attribute is the transparency of merger and acquisition, the high rate of transparency indicates the successful completion of the process. In addition, from the evaluation it is also detected that low transparency during the acquisition and merger process mainly increases complication, while hampering operational capability of the merged or acquired company (Parola, Ellis and Golden 2015).

Communication:

The use of adequate communication process before the acquisition and merger process mainly helps in smoothing the process of collecting adequate data for the successful completion of the event. In addition, the communication during these events is critical as all the relevant information is needed by both the parties, while making adequate decision regarding the acquisition and merger.

There are different characteristics for an unsuccessful merger and acquisition, which are depicted as follows.

No common vision:

The lack of common vision within the organisation will eventually increase the level of complexity during the acquisition and merger process. In addition, the absence of clear statement for the merged company will eventually increase complication for the management to conduct certain operations (Koenig et al. 2015).

Poor governance:

The poor governance, lack of clarity and issue in resolution process will directly have negative impact on the process of the organisation. This poor governance will eventually have negative impact on the performance of the company, as no the management is not conducting adequate measures in controlling the relevant expenses of the organisation.

Weak Leadership:

Weak leadership has the highest impact on the merger and acquisition process, as the merged or acquired company is not able to perform well due to the presence of weak management decisions. Hence, merger and acquisition process losses its friction due to the presence of weak leadership, as its main aim is to improve productivity and profitability, which is not possible under a weak leadership.

5. Describing, Justifying and Classifying the acquisition of mobile telecommunication companies:

The acquisition of mobile communication company Three and O2 networks are relevantly evaluated, while detecting the financial viability of the decisions made by the management. In addition, from the evaluation of the acquisition it could be detected that EU tried to prevent the acquisition and merger process during 2016 in fear for low competition, which will increase call rates in UK. In addition, mergers conducted by telecommunication companies will eventually help in improving the operations, while the reduction in competition will eventually increase call prices and hamper the general public of UK. Furthermore, from the evaluation it is also detected that the competition commissioner in UK was responsible for the stoppage of the acquisition process of Three and O2 (Techadvisor.co.uk 2016).

Hence, after evaluating the decision made by the EU regarding the blockage of the deal was adequate, as the acquisition process will strength the company, while reduce the number of operators within the industry. The acquisition would also help O2 to reduce its overall debt, while improving the operational capability of the organisation. from the view point of O2 and Three the acquisition process was justified, as it would make them one the biggest telecommunication giant in UK, which will increase their market share and profitability. However, the reasons behind the stoppage of the massive deal was the growing concern of the regulators of UK in regarding the service cost of telecommunication sector (Ft.com 2018).

Conclusion:

The evaluation of merger and acquisition process mainly helps in gaining knowledge regarding the significance of the process. Companies use the merger and acquisition process to improve their current operational capability, while limiting the extent of expenses conducted in their operations. In addition, the assessment also evaluated characterises of merger, while indicating different level financing options available to the organisation. Moreover, the evaluation is also conducted on three different type of acquisition process, while indicating the reasons, why companies conduct acquisition process. Hence, companies with the help of acquisition process is able to improve their current capability, while boosting both their profitability and productivity.

Reference and Bibliography:

Boschma, R. and Hartog, M., 2014. Merger and acquisition activity as driver of spatial clustering: The spatial evolution of the Dutch banking industry, 1850–1993. Economic Geography, 90(3), pp.247-266.

Brueller, N.N., Carmeli, A. and Markman, G.D., 2018. Linking merger and acquisition strategies to postmerger integration: a configurational perspective of human resource management. Journal of Management, 44(5), pp.1793-1818.

Ft.com. 2018. EU Commission blocks Three-O2 telecoms merger | Financial Times. [online] Available at: https://www.ft.com/content/32018c52-1695-11e6-9d98-00386a18e39d [Accessed 25 Jul. 2018].

Greve, H.R. and Man Zhang, C., 2017. Institutional logics and power sources: Merger and acquisition decisions. Academy of Management Journal, 60(2), pp.671-694.

Holburn, G.L. and Vanden Bergh, R.G., 2014. Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. Strategic Management Journal, 35(3), pp.450-460.

Kim, J., Zheng, T. and Arendt, S.W., 2018. Identification of Merger and Acquisition Waves and Their Macroeconomic Determinants in the Hospitality Industry. Journal of Hospitality & Tourism Research, p.1096348018776461.

Koenig, W.P., Kramer, G.A. and Vogel, M.B., Shareholder Representative Services LLC, 2014. System and method of generating investment criteria for an investment vehicle that includes a pool of escrow deposits from a plurality of merger and acquisition transactions. U.S. Patent 8,706,599.

Marpe, J.S., Coyle, D.W., Kiene, B.P., Chestnut, G.P., Durocher, J.F., Adler, S.R., Farner, L.L., Pepper, R., Kim, R., Yammine, P.R. and Dangel, C.K., 2015. System, method, and article of manufacture for a merger and acquisition knowledgebase. U.S. Patent 9,123,011.

Parola, H.R., Ellis, K.M. and Golden, P., 2015. Performance effects of top management team gender diversity during the merger and acquisition process. Management Decision, 53(1), pp.57-74.

Tanriverdi, H. and Bülent Uysal, V., 2015. When IT capabilities are not scale-free in merger and acquisition integrations: how do capital markets react to IT capability asymmetries between acquirer and target?. European Journal of Information Systems, 24(2), pp.145-158.

Techadvisor.co.uk. 2016. EC blocks Three's O2 buyout - but why?. [online] Tech Advisor. Available at: https://www.techadvisor.co.uk/feature/broadband/why-three-has-been-blocked-from-buying-o2-uk-3594455/ [Accessed 25 Jul. 2018].

Zhang, J., Ahammad, M.F., Tarba, S., Cooper, C.L., Glaister, K.W. and Wang, J., 2015. The effect of leadership style on talent retention during merger and acquisition integration: Evidence from China. The International Journal of Human Resource Management, 26(7), pp.1021-1050.