A merger is the best option that Sumitomo Bank should take when making the decision to invest in Amadeus Technology. This is because this form of business venture will present a number of advantages to both entities when compared to the option of operating as single entities. Merging with another company or other companies goes a long way to solve a company’s challenges. This is because the combination of the human resource and technological knowhow from the individual companies plays a huge role in helping the company solve its problems. Some of the reasons that justify this choice include:
Reduced costs
When a company enters into a merger, its expenses are likely to go down. Marketing expenses will certainly go down due to an increased ability to enjoy economies of scale. In addition, a merger between companies increases a company’s purchasing power. There will also be an increased economical use of office space since the merged companies will share office space. This will eliminate any chances of duplicate manufacturing facilities .
Market penetration
Merging theoretically translates to more customers. This is because the market share possessed by individual companies will be combined. The larger the market share, the higher the stock turnover and, therefore, higher chances of generating profits.
Diversification
When companies merge, they have a capability to offer a greater range of products. The combination of what individual companies were offering before the merger puts them in a unique position to provide diversified range of goods and services. As a result of this, the company will have a larger market base due to the increased number of consumers at a particular time.
Skills and Knowledge
After companies merge, the technological knowhow and technical knowledge within the companies doubles. The companies are in a good position to keep their technical heads together to prevent the weaknesses that were experienced before merging is easily avoided. The skills of both teams put together increase the chances of a company possessing competitive advantage. This will certainly improve the company’s performance since there is increased market share and technological knowhow in terms of technical skills .
Considerations before executing the financing plan
As a bank, the credit worthiness of a client is crucial prior to executing any financial plans. The bank has to assess the client’s ability to pay debts in time and within the agreed parameters. This is to say, credit worthiness is what a bank should consider besides the customer’s collateral security. These considerations can be expressed as steps of loan processing. The bank considers the legibility of a customer to borrow a loan by taking in to consideration the so called 5Cs. The 5Cs include: character (integrity of the company), Capacity (cash flow), capitalization, communication, collateral security
Stepwise analysis
Capacity
The customer’s capacity to repay the loan is one of the most crucial factors that are usually considered before giving out a loan. It is also important for the bank to know how the customer intends to pay the loan. The bank does this by analyzing the customer’s cash flow which helps the bank to draw probability figures regarding the repayment of the loan. The bank also assesses the payment history of the customer in relation to its relationships with other clients. A customer with the ability to repay the loan should have other sources of repaying the loan.
Capital
The capital in a business is the amount of money an individual has invested in his business, and he/she willingly risks losing it should the business fail. The bank expects a client to have invested personal assets in the business as capital, and is willing to lose them should things go hay wire .
Collateral
The bank requires guarantees that the loan will be repaid where the client is required to pledge personal assets should the client fail to repay the loan in good time or according to the agreed parameters. Assets such as vehicles and houses are usually pledged as collateral.
Character
The impression the client makes to the bank is vital for his/her successful application of the loan. The bank, in many occasions, makes subjective opinions on the capability of the client to repay the loan. The background information of the business in general gives the bank a fair idea of the capability of the company/client to repay the loan .
Attitude of FDI in Spain
Foreign Direct Investment differs from one country to another. It is imperative for a corporate business that intends to merge with another, in a foreign country, to consider the attitude of the foreign direct investment in that country. Spain, for example, has integrated with the European Union, meaning there are fewer trade restrictions within the European continent. Spain has embraced bilateral and multilateral networks, for over a decade now, meaning she is ready to enter into viable business with any other country whose legal system agrees with her.
Therefore, for Sumitomo bank in Japan to invest in Amadeus Technology in Spain, all these considerations are imperative. Spain, having joined the European Union over a decade ago, indicated her willingness to work with countries from Europe, in terms of trade. Multilateral networks are an acceptable idea in Spain, and, therefore, the corporate customer can successfully merge in this country .
References
Baiden, J. (June 26, 2011). The 5 C's of Credit in the Lending Industry.
Brown, D. (2008). 5 Cs of Credit, Keys to Small Business Lending. .
Kalinova, Palerm, & Thomsen. (2010). OECD's FDI Restrictiveness Index: 2010 Update”, OECD Working Papers on International Investment, No. 2010/03.
Michael, S., & Benjamin, K. (August 29, 2010). Leveraged Buyout Bankruptcies, the Problem of Hindsight Bias, and the Credit Default Swap Solution. Columbia Business Law Review , Vol. 2011, No. 1, p. 118, 2011.
Tomas, H., & Zuzana, I. (2011-04-30). Which Foreigners are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FD. Ideas.repec.org .
