Cross-Border Mergers, Acquisitions and Valuations

Cross Border Mergers, Acquisition, and Valuations
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Cross Border Mergers, Acquisition, and Valuations
Introduction
Mergers and acquisitions (M&A) refers to the consolidation of companies. Two businesses merge to form one company while one business may buy out another business in the process of acquisition. There are many reasons that lead to the above two scenarios and the process happens within and beyond borders depending with the need at hand and financial muscles. According to Menapara and Pidhadia (2012), there are diverse motives leading to mergers and there are no conclusive reasons or effects of mergers after a long time of study and research. Leading companies are continually seeking to access strategic assets to give them a competitive advantage. Others are driven by the desire to be monopolies and have dominance over all others. Such intentions have seen multinationals grow their roots across the world. Other companies seek to have synergies in both local and international markets. There is also the genuine need for any business to grow big in order to ride on economies of scale which is a reserve for the few at the top of the business chain (DeYoung et al. 2009). Political, social and economic uncertainties may push companies to spread risk across many countries. Other companies have money to spend and they do not mind exploring new and existing opportunities from across the world.
Cross-border mergers and acquisitions have proven a success and failure in equal measure from past experiences with many companies. The primary goal of a merger is the desire to build a better financial performance (Erel et al. 2012). A firm will acquire another firm with reference to its brand strength in the market, improved technology innovation, and a firm with a considerable market performance. The primary goal is to gain financial leverage in market by buying value from another company that allows operations to go on even in new locations without necessarily forming a new company. The process alone of transacting and settling in different countries with diverse regulations and different cultural backgrounds has proven a daunting task. The paper seeks to explore what happens from selected case studies. Whether the process takes place within one country or across two different countries, the factors affecting both scenarios are the same. One, a firm may pay way over the actual price or might be financially handicapped after the financial transaction. Combining two corporate cultures is uncertain and laborious. In most cases, companies are forced to downsize and the human resource departments risk facing the law. Companies downsize with an effort to get economies of scale. There have been cases of two firms initially having come together separating and each trying to save its own firm. The process gets tougher when the transaction is inter-borders as the government of the acquiring firm in most cases has little or no say while the receiving government seeks to intervene from matters regarding pricing, to employment guarantees for her citizens, to favoritism issues. The process at this stage is so hard and successfully completing it is enough indication of a company strong enough to beat any challenge whatsoever in the business industry. The paper also seeks to analyze the underlying techniques used to achieve mergers and acquisitions across borders.
Motivations and Effects of Mergers and Acquisitions
A firm would seek to acquire a company in order to gain an upper hand in the market as would either gain financial synergies and top managerial talent, access economies of large scale, and have top managerial team in place who will continue bringing their input unlike when a company is formed from scratch and staff are new with no assurance of their delivery capabilities. A firm has the bigger goal of acquiring as much market share as possible. A firm can acquire companies already serving the target market in mind. According to Rani, Yadav and Jain (2016), things get better and a firm acquires more power over a market when it manages to acquire its competition over a certain market. The newly consolidated company would have monopoly over the market and will enjoy setting prices with no worry of competition using the pricing strategy against them. Acquiring competition is a sure way of quickly acquiring a larger market share with already actual needed products to supply and meet a ready market demand.
M&A hold a promise of giving tax benefits to shareholders of firms after they are acquired. Research studies have sought to find out whether tax benefits are anything to go by to influence firms by acquirers (Auerbach & Reishus 1987). The action of acquisition alone does not increase the financial performance of any firm as more has to be done to see any change financial. It is common misconception that a firm would automatically gain financially after an acquisition (King et al. 2004). The economic advantages that come with M&A are the leading motivation to more of the activities. The desire to own an extensive market share in a given location is a leading motivation to mergers and acquisition today. It is an intrinsic desire for any corporation to have power over the market.
In case a firm is not performing well, it is almost a guarantee that a firm doing well in the same industry can help rehabilitate the former. Most companies have sought to be merged to retain their former glory while the companies in charge of the merger take advantage of the opportunity to enter into more market openings. A non-performing company has a good opportunity to redeem itself after a merger. It has been the case of many companies and a pointing reason to the rising cases of mergers today. Pawaskar (2001) conducted a study with results showing two companies performing poorly financially before a merger while studies of the merger indicate later that the two consolidated companies are performing much better together. Profitability and leverage in the market is greater than what was initially there before the merger. It is not necessarily the case that a merger and acquisition will automatically bring success. There have been cases of poor performance for mergers. There are many reasons to consider when taking the step of merging a firm or acquiring a firm. The details in between are the actual builders or breakers of the newly formed consolidated company. Here, the details of how you bring together to separate teams of employees in to one team may mean success or failure at the end of the day. The employees need to be integrated well to work together with directed efforts toward one goal. It is a different case when a firm creates conflicting interests among employees. When their focus is divided in attempts to compete or at least secure once position, a lot is lost along the way. Newly set up mergers ought to drop old organization structures while looking at trends and changes in the market and business model. It serves good purposes when a firm continually builds on the organization structure to bring the face of the new form of business. The organization culture is also key. It informs how employees relate and behave in the work place. It also informs how business activities are done. The values of the company are exhibited well in the organizational culture. A strong one will mean success while a weak one will continuously introduce loop holes for failures in the process of work.
Technology is an integral part of businesses today. Mergers and acquisitions ought to factor in and invest in IT. According to Weill (2004), IT Governance refers to the guidelines that guide and encourage the adoption of use of IT in workplaces. It is an umbrella body that defines the decisions around the IT system. It forms the basis of how things are done concerning IT matters from different locations of the world. The framework assigns role to help with the accountability process along the line. IT is dependent in almost all organizations while holding the most vital thing in the same organizations- information. Peter Weill and Jeanne W. Ross conducted a study across 250 companies and they established a strong link between successful companies reporting high profit margins and proper IT governance in place. IT governance informed effective processes in place and the best use of information which most companies already have. It is commonly known to many that information is power but when the same power is not tapped it is of no value to anyone. Information w...