An acquisition could increase the size and profitability of your business overnight. It might allow you to take advantage of new economies of scale, or move into new areas. You might be able to acquire a bigger and better customer base, or strengthen your management team.
But an acquisition can also bring problems, draining financial and management resources from your original business.
You need to work out whether the acquisition will add value to your business, after making realistic allowances for all the hidden costs. To be successful, it will need to bring a number of benefits to your business. This briefing covers:
• The arguments for making a business acquisition.
• How to use an acquisition to expand your business.
• How to use an acquisition to reduce costs and risks.
• Acquisition pitfalls and how to avoid them.
Defining your aims De
Acquisitions are more risky than organic growth.
Be clear about what you need, and what you expect an acquisition to do for you, before investigating possible takeovers.
1.1 What are your strengths? Can you complement them? Can you afford to risk weakening them?
• How good are your employees?
• How good are your products, your market position and your market share?
• Do you have financial muscle?
For example, money in the bank, or shares in your own company which can be sold.
• Do you have advantages in technology or production processes?
1.2 What are your weaknesses, and how could you fix them?
• Is your market position shaky?
• Are your finances overstretched?
Are your overheads taking too high a proportion of your income?
• Do you have any management weaknesses?
1.3 Analyse your opportunities, and how you might be able to take advantage of them.
• Do you have a solid marke...
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• For example, you might not want (or be able) to buy the company that owns the brand. But you might be able to buy a company that holds a licence to use it.
If you offend the brand owner (eg by threatening to compete), you may still be denied the use of the brand.
B. Your ambitions may be blocked by public policy restrictions.
• For example, you may not be able to get planning permission for an outlet where you want one. But you may be able to buy a business already operating there.
My Opinion
“Always consider whether you have sufficient management resources to identify, negotiate, finance, manage and integrate an acquisition.”
Cobalt Corporate Finance
“Don’t forget the ‘invisible’ costs of an acquisition. The time spent on searching, researching, evaluating, negotiating and fund-raising might be better spent on improving and growing the original business.”
The second section will be a report to the board of directors that identifies a synergistic acquisition candidate for Target. This section will identify Target's proposed acquisition terms, price, financing, and potential negotiation strategies. This segment will also include price / earnings ratios, book value, current market value, and liquidation based on the supporting financial data. Also in this part will be a discussion of the general and specific risks inherent in an acquisition strategy.
According Hillier (2013), a horizontal acquisition could increase operating efficiency through economies of scale. Generally, the cost per unit is relate to the size of production, a company would experiences economies of scale in which the cost per unit decrease with an increase of production size until it reaches the optimal firm size and after that diseconomies of scale will show up. Furthermore, we could share same central facilities such as computer systems, corporate headquarters and management which could reduce the management costs. A lower operating and management costs could miti...
In our days mergers and acquisitions are a predominant feature of the international business system as companies attempt to exploit new market opportunities and to strengthen their market positions. Each year sets a new record for the total value of mergers and acquisitions and nearly every day new announcements are made in the business newspapers.
Kinsell, Krik. (June 2005). Factors to consider when planning consolidation. Franchising World, Vol. 37, Issue 6, pp. 63–65. Retrieved September 2, 2008, from: kirk.kinsell@ichotelsgroup.com
Brenda, I must start by saying I am not in total agreement with the notion that mergers and acquisitions are fast and efficient ways to get into new markets. Casing point the current case of wellcome, no one could prove to me in any way that this merger was anything close to efficient. I would, however, agree that it can be a faster way to get into a new market and consolidate resources. Per (Hussinger, 2010), technology acquisitions can strengthen the firms’ technological competencies, on the one hand. A bundling of competencies can be important in order to stay competitive in fast-growing markets. Effective communication in my view can be one of the key ingredients to having a successful merger. It
While an acquisition is when one company or entity takes over another and clearly establishes itself as the new owner. From a legal perspective, the target company or entity ceases to exist. The buyer absorbs the target and the new organization is recognized either publicly or privately. (CIPD, 2009) Although both terms are different, they are
Hammond Cards, Inc. is a small player of the greeting cards industry in the United States of America due to the fact that their annual revenues equate to less than 1% of the industry leaders as described in the case. In their effort to stimulate growth, however, Wendy Hammond has employed me to analyze the potential acquisition of another company, Creative Designs. My analysis will firstly look at the main issue behind this acquisition and then further break it down into sub-issues that I will address individually. Since both of these companies follow a different strategy I will evaluate the two different companies and discuss the implications of their strategies on the merger. I will then perform various cost analysis to determine the cost structures of the two firms which will help me identify whether Wendy’s intentions can be carried out. In my analysis I will aim to figure out the practical capacity of the firms and get an indication on whether their current operations are using the optimal level of capacity and minimizing waste. This data will help me with my strategic recommendation of acquiring Creative Designs and fitting it in with the current strategy of Hammond C...
Ochse, G. (2013, August 15). Things to think about when buying a business. Finweek, 51. Retrieved from http://web.b.ebscohost.com.ezproxy.denverlibrary.org/ehost/pdfviewer/pdfviewer?sid=c4507653-e8f4-4f58-8882-d5d970a15628%40sessionmgr110&vid=2&hid=103
When entrepreneurs plan their business future they will consider how they can increase their business size or profit in a short period. Entrepreneurs may consider growing their business or company by using a merger or an acquisition. These methods can be a speed up tool and a short cut to enlarge their business. (Burns, 2011) Also they can reduce competition, make it easier for entrepreneurs to think about the market and product development and risk reduction. Furthermore, some lesser – known companies can improve their firm’s image and market power by using merger and acquisition with larger firms. However, there may be risks associated with merger and acquisition related to lack of finance and time. (Burns, 2011) This essay will discuss more deeply the advantages and disadvantages of using mergers and acquisitions, showing how it can affect firms and market with the case study.
Acquisitions can be very taxing on both the buyer and the seller during periods of negotiation through development of a binding contract: each wanting different terms and conditions. Neither understands the emotions behind the potential risks involved for both parties.
12.Seth A, 1990, Sources of value creation in acquisitions: am empirical investigation, Strategic management Journal, 11, pp.431-446
The acquisitions process starts from obtaining the necessary raw materials to make a product and ends with the delivery of the product to the buyer. Acquisition and Supply Chain Management encompasses activities such as contract administration, product procurement and manufacturing, and logistics.
Chaurasiya, K. and Profile, V. 2010. Advantages and disadvantages of acquisition | business management strategy. [online] Available at: http://businessofaccouting.blogspot.co.uk/2010/04/advantages-and-disadvantages-of.html [Accessed: 8 Mar 2014].
The first two do not require the acquired business unit to be connected with the existing units; the second two depend on connection. Although the concepts are not always mutually exclusive, the way in which they generate value for the corporation is different for each. The portfolio management balances current business activities with new industry acquisitions. Its success is undervalued acquisition meets attractiveness and COE test. The challenges are: increased capital market competition, need for industry specific knowledge, and growth of the company and diversity. The restructuring seeks underdeveloped or sick companies and industries. Its successes are: utilize and pass the three tests and ability to find undervalued companies with growth potential. Its challenges are: restructurer exposed to more risk, time limit for success, hold onto a restructured company, and growing depletion of restructuring pool with increased competition. The transfer of skills involves activities important to competitive advantage. With transferring skills, business activities are similar enough that sharing knowledge would be meaningful. However, skills must be useful to key business activities and must be beyond competitors’ capabilities. The ability to share activities has been a potent basis for corporate strategy because sharing often enhances