Project Title
Draft 1 (10/11/2014)
Impact of Mergers and Acquisitions on Operating Performance: a Case Study of UK
Literature Review
There could be multiple reasons of M&A, but the main reasons of merger and acquisition could be acquiring the brands, market access and the knowledge of the market. M&A can cover The possible loss in the company's image or product services. Merger and acquisition is one of the reasons to cover the business financial losses. The increase of foreign companies in mergers and acquisition is that these companies have the ability and power to expand the deals. Mergers and acquisitions are the aspects of dealing with buying and selling, expanding and merging distinct companies. It helps the companies to enhance the growth and increase the productivity in the market (National Statistics, 2011).
Mergers and acquisition (M & A) have been widely discussed topics and strategies in the discipline of corporate finance. Merger and acquisition are also considered as the area of corporate finance, management and the strategy dealing in which buying or combining of companies’ takes place (Piloff and Santomero 1998). This research is based on different views of different scholars and the impact of the mergers and acquisitions on the operating performance of the businesses.
The Economic Theories Underlying M & A
Synergies between companies are often the most cited reason for mergers and acquisitions. They come from cost reductions and revenue increases. According to a recent study of several thousand M & A deals between 1990 to 2005, 23% forecast potential synergies (Bernile, Lyandres and Zhdanov, 2011).
M & A Vs Direct investment or Exports
Buying a rival firm is preferable to direct investment or exports since the former reduces competition and potentially result in immediate increase in profits. In addition, the merging firm often pays the cost managing a larger corporation and thus can be less expensive when compared to direct investment of starting a new company (Bernile, Lyandres and Zhdanov, 2011)..
Cooper and Finkelstein (2012) have noted the inconsistent trends of the success and failures of M & A. They further cite various reasons of such as inconsistencies in the measures as well as the differences in the measurement tools that lack comparison. Another reason noted for the ambiguous results of M&A is the fact that each merger or acquisition is unique in nature; therefore, the comparison of the measurement tools becomes irrelevant. Liargovas and Repousis, (2010) noted that scholars have been consistently trying to develop some of the generalized results from the mergers and acquisitions transaction without considering it a difficult job.
The operating performance of the mergers and acquisition is affected when there are drastic differences among the organizational behaviors. National and corporate cultural fit issues play significant role in the success of mergers and acquisitions (Weber, Shenkar and Raveh, 1996). Because these are the main factors and if these differences are continuously coming in the organization’s performance then the failure rate will increase within the companies. Cultural differences play a major role in the productivity performance of an organization because if this difference will not be resolved then the performance of the company will not be up to the mark. Moreover, to make a profitable environment these things should be valued and should be given priority for the end results.
Tax Consequences
Moreover, for the better results of the merger and acquisitions, the tax transactions of the deal should be clearly mentioned in the documentation and to ensure the tax transactions multiple advices should be gathered. There is a possibility that the merger may be or may not be in favor of the company once the tax consequences are taken into account. Research suggests that conditions for M&A that could be successful in one tax scenario may be unsuccessful in another (Dauber, 2012).
Financial Stability
Jorgensen and Jorgensen, (2010) stated that the banking sector with the financial crises can exploit merger and acquisition to maintain the capital requirements of the financial institutions. Jorgensen and Jorgensen (2010) showed that the recent merger and acquisition of financial institutions emerged in the nations that are improved in Malaysia. Different factors are increasing the competition in Malaysia and because of which merger and acquisition are taking place. These factors are the development of information technology, globalization and the liberalization. The result of these crises formed the ten anchor banks with the involvement of total fifty-four financial institutions. The financial stability is the most serious issue because of the multiple factors that are connected to the financial crisis. According to Berger, Saunders, Scalise, &Udell, (1998), the impact of bank merger and acquisition on small ventures accommodating the data on almost 6000 current US bank merger and acquisition. This research is based on disintegrating the effects of merger and acquisition in a fixed state to avoid the after effects of merger and acquisition. It is observed that the fixed state of small ventures can be reduced through the combination, but the issue is that these small ventures usually offsets by the response of the different banks.
Operating Performance
The measurement of operating performance of the merger and acquisition is also possible by focusing on the motive of merger and acquisition itself. The performance can be measured by the benchmarking the results of merger and acquisition against different market values and financial stability. At the time of benchmarking, the organizations are questioned with the regular decisions that can give the absolute opportunities internally and externally. So, the managers and administration should take decisions that how the sources will be used, how the profit, sales and the company’s whole portfolio is going to increase with the merger and an acquisition. The purpose of the merger and acquisition is always focused on the long-term relationships by having the views of different stakeholders who can brief the performance and interests of the company. Stakeholders invest in the shares for having the profit to be doubled beyond the amount the shareholders have given.
Growing M & A in UK
The number of mergers and acquisitions are growing readily to capture the foreign companies that are willing for the investment in the UK (National Statistics, 2011). The mergers and acquisitions are taking place but according to this research mergers and acquisitions (M&A) are involved in acquiring the registered company of UK with another registered company of UK. So the possession will remain in the UK for that company. Acquiring a company over another does not mean that company is only going to head the other company but the whole process of the company and making them profitable for the future considerations. All the possession of the company is acquired in which the operations, assets and the employees come under. The company is supposed to make an image by respecting the merged companies rules and regulations. As every company has their regulations to follow so it is important in case of merger and acquisition that all the factors should be considered properly for growth. The viability in growth after merger and acquisition can grow quickly if the operations of both the companies are clearly understood.
The organizations that are operating in UK, however they may not have enough knowledge about the market and how to manage the business in UK face different consequences and losses. These are the types of businesses that usually merge with another company in order to improve the brand image and become stronger.
(National Statistics, 2012)
The graphical representation shows the “expenditure on acquisitions abroad by UK companies”. A statistical representation of the data gives the range of merger and acquisition and dispositions increase in UK companies with all the values approximately $1.0 million. The major findings of through this graph are mentioned here; in one-quarter of year 2011 the acquisition values increased by $18.3 to $3.8 billion in the fourth quarter of 2010. This is the visible investment since the 2007 fourth quarter. While the impact of the expenditure on the acquisition reduced in 2011 from $7.0 billion to $6.8 billion in the UK by foreign organizations. In 2010, the expenditure of with the country, reduced to $1.2 billion from the in 2011 from $6.3 billion in the fourth quarter of 2010.
Furthermore, Mergers and acquisitions are the sources of investment like when the companies are trying to capture the other company it is basically an investment for these companies. The purpose of acquiring any of the company is to increase the productivity or image of the other company. There are different considerations for merger and acquisitions for different sectors because it affects the operating performances of the company. Sometimes M&A takes place for the sustainability of the company. Like merging an organization clearly says that the whole operations will be affected either it would be human resources, supply chain, finance or any other department. The flow of the internal activities depends upon the department to department. However, the major impact of merger and acquisition is on the operating performances of the companies. The merger and acquisition in different departments have different expectations, for product development it is expected that it will give all the product and service solutions to its customers. From human resource point of view, it is said that M&A will give the opportunity to reduce the costs by combining and unifying the human resource process. In supply chain, it is said that minimizing the cost of goods sold with the help of scale and combine efforts (Deloitte, n.d).
Multiple factors assess the expansion in the merger and acquisitions. The market of M&A is firmly equated to the stock market, and it is also marked internationally for the growth perspective. When the situation of crisis occurs, it means the necessity of merger and acquisitions is rising for maintaining the departments. Different crisis could arise in different situations like when the financial crisis occurs then the finance department should be focused and simultaneously for other departments as well. The main reason is that all the operations of the management will eventually affect the performance of an organization. It is necessary to notice that all the strategic mergers are not lawful, and this is the reason because of which few are banned by the regulatory authorities. A strategic acquisition is something in which the acquiring the company will benefit in operating performances, it simply means that the companies will give more profit as compared to a single entity (Liargovas, &Repousis, 2010).
Although the mergers and acquisitions give the opportunities but with every aspect of this, there are some risks connected with it too. Merger and acquisition are not always successful in the market there are risks as well that impacts the market performance of merger and acquisition. The customer relationship is to be preferred with the merger and acquisition to avoid the risks because the customers are the main sources of the marketplace, and it will eventually affect the organization’s operating performance. Mergers and acquisition will only be effective when the customer will be buying the products as per their requirement as it was before M&A. The customers are one of the reasons of merger and acquisition because there is a possibility that the practice of M&A may lead customers to the changing buying behavior and the reaction against the products. Moreover, the competition makes a company work hard to give the best quality of the product to attract the consumer market (Öberg, 2008).
Conclusion
The literature research review suggests that the mergers and acquisitions are taking place to get the cooperative values, that impact on the operating performance of the companies. The current report gives both the views, that the practice of merger and acquisition could be favorable and unfavorable. The operating performance of organizations is evaluated that if the company focuses on the factors that are not in favor of the company. Merger and acquisition can give a successful impact on the operating performance of an organization if people, power, financial stability, and many other factors are being considered. Cultural values of M&A organizations are the main reason to failure, to avoid this failure and having a viable position in the market companies should focus on the both pre & post effects of the merger and acquisition.
In spite of the exyensive research on various aspects of M & A, there is very little information available regarding how the primary factors initially touted as the reasons for a mearger fare in the end. The research prposed here would examine the initial facrors for M & A in UK in the past 10 years and examine their success rate.
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