Keywords: advantages of mergers and acquisitions
1. Introduction
Mergers and Acquisitions (MandA) established fact as you of significant business activities all over the world which have attracted the interest of each business administrators in the economical competition. Within the extreme competition, companies have to deal with many issues and desire to become profitable, energetic and successful ones. They cannot be the winners in market share's level competition without added capital, technology and human resources, especially from M&A activities. Besides several different noticeable methods to have more resources such as tactical alliances, technology transfer and joint ventures, M&A is greatly regarded as the most powerful marriage between company and its partner in the deal. Noticeably, the sizeable increase in the amount of M&A deals in several recent years let the international capital investment into some Asian expanding countries such as: Vietnam, Philippines surge dramatically.
It is evident that M&A creates a large number of must - buy opportunities for businessmen, which add incredibly the huge value to the global economical growth. M&A efficiency is undiminished and it will depend on the depth of sources of both factors as well as the experience in restructuring companies following the offer. Many research demonstrated that the primary percentage of M&A circumstances happen in bank and finance areas when banks and financial firms want to approach to new market; pharmaceuticals or software technology when one company might merger with the others in their development system. There are various deals between a large number of the largest and most successful global companies such as Daimler Chrysler, Chase-J. P. Morgan, NationsBank- Loan provider of America thought to be the impressed bargains in M&A record. However, there are still some quarrels that believe the benefits of M&A and highlight too many businesses that could not reach to the meant results. Therefore, I feel that we have to consider the great things about M&A carefully and help companies be comfortable when they conduct M&A deals. Especially, I write this essay to review more specifically what companies get in M&A situations.
The main person is split into four parts: Meanings and types of M&A, Reasons for M&A, Noticeable M&A cases in last 90 days and Great things about M&A.
2. 1 Definitions
According to Yahoo, a merger can be defined as a combination of several companies where the property and liabilities of the selling company(s) are assimilated by the buying organization. However the buying firm may be a considerably different corporation following the merger, it retains its original personality. The merger of equals between Sprint and Nextel can be an example. Meanwhile, an acquisition can be recognized as the business enterprise activity where one company purchase a secured asset like a plant, a section, or even other company. For example, Procter & Gamble made a significant acquisition in 2005 when it purchased The Gillette Company, Inc. , in order to increase its reach in the buyer products industry.
The above explanations are expected as basic explanation for mergers and acquisitions. It made the readers have a short review about mergers and acquisitions. M&A is known as the purchase one company of other company in a merger case or perhaps one division is managed by other company. This classification is common, easy to understand and bring the overview to everyone. However, it does not emphasize to the lifestyle of the bought companies as well as types of mergers and acquisition cases.
Gaughan (1996:7) state governments that "A merger is a blend of two corporations in which only one company survives and the merged company is out of existence. Inside a merger, the acquiring company assumes the assets and liabilities of the merged company. There are several kinds of any merger: statutory merger, subsidiary merger". It has been remarked that there is merely one company following the merger deal and they contain the better resources than previously with new added gain from the merged company such as: capital, market benefits, human resources, chain stores etc.
Nevertheless, people have a tendency to misunderstand between the explanation of merger situations and acquisition ones. It has been stressed that a merger mentions to the truth in which two companies join together (usually through the exchange of stocks) to become one while an acquisition typically has one company which called the buyer purchases the property or stocks of owner by cash, the securities of the customer or other resources of value to the seller.
2. 2. 1 Type of mergers
Due to the number of mergers, mergers situations have been categorized as horizontal, vertical or conglomerate mergers: (1) Horizontal merger where two companies that are direct competitor and show the same product lines and market segments, for example, Procter and Gamble as well as the Gillette Company, Inc. , they may be have the same market in consumer products, (2) Vertical merger: are combos of two companies where one company is owner, another one is the customer in produce treatment; one particular merger occurred between Time Warner Incorporated, a significant cable operation, and the Turner Firm, which produces CNN, TBS, and other programming, (3) Conglomerate merger: two companies that contain no related business areas; the deal of Walt Disney Company and the American Broadcasting Company is the notable case for this kind of merger.
Hagedoorn (2002:70) claims that the main range of successful M&A situations belongs to horizontal merger and vertical merger circumstances, not conglomerate merger ones. Noticeably, the related merger, including horizontal merger and vertical merger, are expected to benefit from economics of range and scope than the conglomerate merger bargains.
Due to the types of funding for mergers, there are two types of mergers that are recognized by the way the merger is financed. Each has certain implications for the companies involved and for investors:
- Purchase Mergers: this type of merger happens when one company buying another plus they pay in cash or the way to solve credit debt. This purchase is taxable.
- Loan consolidation Mergers: a brand new firm is made and both companies are put together under the new entity. The taxes terms would be the same as those of a purchase merger.
In a merger, data gathering and due diligence are two-way and shared, with each get together setting its contribution to the post-merger entity to justify its respective equity show, management, and control of the new company.
2. 2. 2 Kind of acquisitions:
There are two types of acquisitions which be based upon the type of payment:
- When the buyer purchase the vendor in stock, those companies are not necessarily combined with buyer's current company, but often held separate as a new subsidiary or working division.
- In an asset purchase transfer, the resources conveyed by the seller to the customer become additional property of the buyer's company, with the hope and expectation that the value of the assets purchased will go over the purchase price paid over time, thereby enhancing shareholder value consequently of the tactical or financial benefits of the business deal.
There are several possible motives and reasons make the directors want to perform M&A purchase. They be prepared to reach the better business results if they're successful in M&A circumstance: (1) Restructure the industry value string, (2) Usage of the greater resources of the acquiring company, (3) Revenue enhancement, (4) Reduction of cost or obtain cost through economics of level, (5) Growth stresses from investors, (6) Reduced amount of the amount of challengers, including: increase market share and reduce price competition, (7) Get more selection of products and know-how, technology process, (8) Take off stores in the same market areas, (9) Create the larger product with the same capitals, (10) Obtain taxes benefits
Mergers and Acquisitions (M&A) is recognized as taking care of of corporate and business strategies, which is more and more popular across the world based on its effectiveness of economics of level and range. These activities are conducted to attain to the help of finance as well as resources that could help the director of the acquiring company overcome the down sides. M&A is a strategic tool used to produce the larger market show or product amount with the modern technologies, efficient human resources and more.
According to Thomson Reuters (2010), M&A activities reached the noticeable results the ultimate second quarter in 2010 2010.
The value of global mergers & acquisitions (M&A) reached US$1. 1tr through the first 1 / 2 of 2010, an increase of 9% over last year, the strongest beginning six month period for M&A since 2008. Appearing Market segments M&A accounted for 32% of global M&A quantity, up from 19% this past year. THE & Ability sector proved the most energetic, taking 19% of announced M&A. Private collateral guaranteed M&A totaled US$73. 4bn, the greatest opening period because the first half 2008. Goldman Sachs tops the global M&A positions with $213. 4bn in discounts advised.
However, executing M&A transaction efficiently takes a huge make an effort for both planks of two (or even more) attributes. In last a decade earlier, there are thousands of failures of M&A situations let us witness the broken advantages of shareholders calculated for time and opportunity costs. M&A should be considered as an activity targeted to proper objectives as a result of considerable risk of M&A.
4. 1. Lavazza and Onda Coffee Break
Lavazza: http://www. lavazza. com/corporate/en/
Onda Coffee Chance: http://www. onda. bg/
Onda Coffee Rest prides itself with being the first restaurant chain in Bulgaria. Especially, they founded business in 2003, and nowadays there all are about 11 cafes in the administrative centre city. Alternatively, Lavazza Group is one of the primary coffee producers on the globe with the esteem of widening its reputation and high quality caffeine to many different regions across the world in order to guarantee excellent espresso.
In May 2010, Lavazza has offered Onda Espresso Break in the action, which is the famous Bulgarian coffee shop chain for an acquisition. It's been confirmed by Table of Lavazza that if they conduct this case successfully, they would expand market show and contain the number one position in Bulgaria, where the use of espresso caffeine is increasing dramatically. Particularly, Lavazza try to raise the presence of its brand on Bulgaria in the store string of Onda Caffeine Break, for this would like to turn these coffee shops to promote authentic Intalian espresso in Eastern European countries. Onda Coffee Break in the action was managed by Global Money, the largest private equity account in your community, as well as local smaller shareholders. M&A International Inc. 's Italian member Arietti & Companions alongside the Bulgarian member Entrea Capital originated the offer and assisted Lavazza throughout the acquisition process, showing once again the worthiness and competitive advantage of M&A International Inc. in cross-border acquisitions.
Felix Abba acquires Kalev Chocolates Factory
Felix Abba: http://www. felixabba. fi/
Kalev Chocolate Manufacturer: http://www. kalev. eu/?id=28299
According to Felix Abba's standard website, Felix Abba is one of the leading Finland's food manufacturers which have production crops in Turku and Lahti. Their main products are pickled vegetables and herrings, milk products and spreads, seafood products and so on. Interestingly, they value to become the main position atlanta divorce attorneys product group and one of the most profitable companies of the Finnish food industry. On the other hand, Kalev Chocolate Factory is Estonian chocolate company created and managed sweet-making customs in two decades. In June 2010, Felix Abba has required Kalev Chocolate Stock from the Estonian positioning Luterma, so they'll dominate 100% stocks in Kalev Delicious chocolate Factory, including production tools and the related trademarks. They desire to take an important step into Estonian market and provide a platform for increasing business in Finland and the Baltic region. This is really the wonderful idea of Felix Abba when they want to reach quickly to new market and enhance their own brand in Europe.
5. Great things about mergers and acquisitions
Ahern (2007, p5) said that "Mergers increase value when the value of the blended firm is greater than the total of the pre-merger ideals of the impartial entities. One of the advantages of pairing firms is the fact that capabilities can be added quicker than by internal programs. With better turbulence in the financial environment, the stresses to adjust to change swiftly are increased. Mergers permit a company to adjust to change quicker than internal organic growth. Hence, more rapidly changing environments create a greater potential role for M&As". It really is clear that the acquiring organization have the certain value when they conduct the M&A package with the expectation of resolving the existing problems or improving the production quality.
The first benefit is the new systems and new range of products companies acquire when they achieve M&A offers. Hagedoorn (2002:68) shows that the effectiveness of M&A situations will be turned out by using new process - related technology and new product-related systems. Furthermore, Research & Development (R&D) activities are likewise have the opportunities to reach new degree of improvement. In many years ago, people rarely noticed to the technology desire in M&A, but now perhaps M&A is a significant component in the technology acquisition strategy of companies, especially in high-tech 21st hundred years. Taking these alongside one another, if the acquiring organization and the received firm want to get the best results that bring an expected profit or overcome current problems, both sides have to guarantee the M&A could let to "strategic fit" and an "organization fit" that enable M&A companions to collaborate in future activities. It is actually proven in reset all human resources as well as the corporation between the Mother board and employees of companies. Therefore, if M&A package has a whole lot of technology elements, that package could reach to success easier.
The M&A transaction is nearly certain to be one of the very most complicated deals running a business market, which takes a great deal of energy from the Board of the buyer and owner. Targeting the ultimate successful result, both sides have to prepare well for the offer, draft the plan, due diligence, and refer legislation consult of taxes. Sherman (2006; pp. 8-9) states the following:
To be successful, a exchange must be good and healthy, reflecting the economical needs of both buyer and retailer, and present real and durable value to the shareholders of both companies. Obtaining this involves a review and examination of financial claims, a genuine knowledge of how the proposed transaction satisfies the economic aims of each get together and identification of the taxes, accounting, and legal implications of the deal.
We think that M&A provides a huge advantage for both attributes if they possess the positive attitude, ready for the negotiation and success to the same goal.
The second gain that everyone respects to get in M&A offer is the effective and effective way to enter in a fresh market, improve a new products and expand syndication system. The buyer can touch customers in the various religion with the reduced cost and the strong brand identify through the existing chain store of owner. Instead of building totally new subsidiary, syndication system, even recruiting new employees, the acquiring company could enhance the current above sources of an acquired company and then impressed the client in new market with lower cost. For instance, when Lavazza want to grow the marketplace to Europe, they choose the way to acquisition with Onda Caffeine Rest in Bulgari. They really want to dominate the caffeine market in Europe through the current string store and customers of Onda Coffee Period of time as well as people who love espresso in this area.
Thirdly, the obvious value that both factors could recognize immediately when they have a good idea of M&A is the keeping of intellectual property. Presently, knowledge of employees is the most valuable property that will require each company have to promote days by days. Interestingly, they could promote the existing expertise employees in the purchased firms and make sure they are become to commitment staff. In addition, many deals are actually fueled by the desire of taking more access to new sources of energy, such as gas, olive oil and other limited resources, so they could improve the previous limited materials suggestions and promote competitive edge than previously. It's been claimed that thousands of deals tends to buy brand loyalty and customer relationships. Buyers are paying a premium because of this intangible advantage on the total amount sheet, which is also known as goodwill. In the current economy, goodwill symbolizes a secured asset that is very important but which is not effectively mirrored on the seller's balance sheet. Experienced purchasers know that long-standing customer and other tactical relationships that will be conveyed with the offer have much larger value than equipment and inventory.
There are some statistics about the change makes related to establishments, relating to Ahern (2007:7)
Change Forces
Industries
Technology Change
Broadcasting, Entertainment
Internet
Packaging & Containers
Computers
Telecommunications
Tire & Rubber
Retailing
Defense
Globalization
Apparels, Textiles
Metals & Mining
Financial Services
Packaging & Containers
Tire & Rubber
Wireless
Commoditization
Chemical
Pharmaceuticals
As we know, entertainment and telecommunications are two of the most dynamic industries that change everyday because of the development of modern facilities and the great technology. Today they may be the biggest company in this field nevertheless they could be the outdated corporation in the next few days unless they revise new technology as well as new ideas. However, changing technology and having new ideas are still the hard missions for the Panel in the extreme competition because they perhaps don't have enough capitals and time to research days by times. Therefore, M&A is the useful method to enhance the competition capability against competitors on the same market by collecting the current advantages of the acquired organizations.
Meanwhile, financial services and product packaging and storage containers are two famous industries that get reap the benefits of M&A through globalization. It is assumed that in those business, entrepreneurs have to connect numerous areas, different market, so they need to update the prevailing services and find out the way to impress clients with high quality services. They could reach to the huge profit by cooperating with the neighborhood companies. Therefore, mergers and acquisitions entice the businessmen progressively in the intense competition.
6. Conclusions
Mergers and acquisitions activities are pointed out as the key role in a company's growth. The benefits of M&A really improve and support for the permanent development scheme. Perhaps the effectiveness of M&A depends on the strategies of the Mother board, the overall flexibility of negotiation period and eagerness of parties, nevertheless they could reach to the prospective if they are ready and aim for to conduct mergers and acquisitions effectively.
The accomplishment of certain corporate and business goals and objectives may entail the external acquisition of assets and resources needed for growth, a step which may be more efficient than internal development. When a buyer pays just what the business is worth on the stand-alone basis, then any benefit extracted from the organized changes (i. e. , synergy) is earnings to the buyer. Conversely, if the buyer adds no value to the seller's businesses, then paying fair value does not supply the buyer with particular gain and drawback. Therefore, we ought to make a careful consideration before conducting M&A, avoiding the unfortunate consequence of capital and time. The Panel of both sides could use regulation talking to services of rules firms or money consulting services at KPMG, PwC, and so forth to improve the quality of planning and negotiation periods.
In conclusion, I want to emphasize the value of M&A to the introduction of corporations. M&A is very verified to be one of the most useful methods to overcome current issues and enhance the development of companies. M&A really support for the progress of global economics, for it make companies in problems become bigger in capitals, recruiting. Therefore, the competition advantages of companies bring them to success and prosperity. Mergers and acquisitions are really noticeable ways to deal with with troubles in the 21st century.
