My Firms Acquisition - Essay Example

?My Firm’s Acquisition Table of Contents My Firm’s Acquisition Table of Contents 2 Introduction 3 The Bidding and the Target Firms 3 Proceeding to the Acquisition 4 Institution Based Issues 6 Resource Based Issues 7 Managerial Motives 8 Management Hubris 8 Success of the Acquisition 8 Reference 10 Introduction Globalization is a well known concept both in the academia as well as in the corporate level where the companies are crossing the borders to be included in the global network. With this globalization, an increasing number of companies are looking forward to mergers and acquisition as an opportunity to expansion and growth. However, according to the statistics, about half the acquisitions become failure (Virani, n.d.). There are many reasons which lead the companies to be indulged into acquisition; the primary reason has surely been the value creation of the acquiring firm. Large enterprises acquire smaller firms to eliminate competition and to fetch a larger market share in the industry. However, still there are many challenges in implementation of acquisition process, which seemed to be as bleak as ever. This report is an effort to look into the acquisition process to answer certain questions. The Bidding and the Target Firms As a CEO, you are trying to acquire a foreign firm. The size of your firm will double, and it will become the largest in your industry.  What does your firm do and what does the foreign firm you are trying to acquire do?  Where are the firms based? Both of the bidding and target firms are based in United Kingdom. The bidding firm is an established retail outlet and looking forward to an expansion in Asia. The firm deals in consumer durable goods including food and beverage as well as other products like technology products. The company has its maximum share in food and beverage section. The company wants to explore the Asian market. The bidding firm has taken a calculated approach while choosing both the target market and the company in there. China has been decided to be the destination country. This was because of China’s attractive economic growth and this can be used as a base to expand the company’s business in other Asian countries. The target company is a well known local retail firm in China with a large local customer base. The target firms also deals in consumer goods like food, beverage, technology products and other such household products. However, it is expected that the acquisition will not be a smooth process. It would also require the cooperation from all the employees, the management, investors and others stakeholders of the company. It will require a strong yet flexible strategy framework to make the process proceed and at the end to make it a success. Proceeding to the Acquisition You are very enthusiastic about the opportunity to be a leading captain of industry and the associated power, prestige, and income.  (You expect your salary, bonus, and stock option to double next year).  However, you are troubled by the fact that 70% of mergers and acquisitions (M&As) reportedly fail.  How would you proceed?   It has been reported that since many years a considerable number of merger and acquisition efforts had failed. The success or failure of the process was due to several reasons including implementation chaos, inadequate planning, cultural difference and insufficient attention paid to the soft issues such as human resource. The bidding firm would surely follow a proper acquisition framework, fit to address most of the above issues. The following image displays the various stages in the acquisition process. Figure: Acquiring Process ­­ (Source: Hubbard, 2001, p.4) In the acquisition process, planning, communication and implementation would be dealt in full with a focus on the human issues (Pande & Krishnan, n.d., p.1-3). In the following image, the entire process has been divided in five stages. It is very much important that the bidding firm must be clear about its objectives to acquire any firm. Once decided about the objectives, the company would be indulged itself in the gathering of required information about the target firm’s resources, financials, operation and other related areas. This is very much important as these would be the deciding factors to choose a target firm for acquisition. The company must have a clear overview of the acquisition process. In the later stage the bidding firm should establish an implementation strategy to acquire the target firm. In the process, it is very much important to take the stakeholders into confidence, which can be achieved with proper communication and information sharing. After the implementation of acquisition, information monitoring and feedback gathering is significant to stabilize the process further to make it a success. Institution Based Issues What institution-based issues would you encounter? Discuss. China has been a country with attractive economic growth and prosperity. However there are certain issues in the country which are required to be taken into account. First of all the country’s political environment must be stable enough to encourage the foreign direct investment. The political situation must be stable enough to offer the required securities and controlled market for the foreign companies. The taxation rule should also be considered attentively to make the right decision. Apart from that, the economic and social aspects in the country should also be taken into account. In the recent recession, almost every country has faced economic downturn; however the intensity may be different. It is very much significant that the country must have a stable economy to support the market to explore the required demand. The social factors are required to be considered to understand the market and the acceptance of the company products. In this case, the company is dealing in retailing of consumer products. So, there is no such specific target customer base for this industry, but acceptance of the foreign products is surely an issue in the Chinese market. There is significant and lingual cultural difference between UK and China. Apart from that, the technological advancements and environmental regulations in the destination country are also required to be assessed before expanding business to any country. Undoubtedly, China is pretty blissful with technological advancement. It is also known for its cheap labor and increasing market demand. So, all these political, economic, social, technological and environmental issues are required to be into consideration while frame the acquisition process and strategies. Resource Based Issues What resource-based issues would you face? Describe. While carrying out the acquisition blueprint, the acquiring company must assess its resources, both tangible and intangible. The acquisition is also done to acquire the resources of the target firms. After the acquisition, the size of the consolidated organization is supposed to increase largely. In that case, the acquiring company is required to evaluate its financial, technological, operational and financial resources to maintain the large size of the consolidated firm. Moreover, the bidding company must evaluate the financial and operational resources of the company. Sometimes, it can be noticed that there is a huge debt on the accounting book of the target company. So, it is of utmost importance for the bidding firm to evaluate both its and the target firm’s resources. This is a significant step to make the acquisition process a success. Managerial Motives What are your managerial motives? Explain. The managerial motives would be to create the value for the acquiring company. The bidding company must have the aim to enhance the financial and operational capabilities of the company. Another objective would be to take the advantages of technological advantages and skilled labor in the target company. While carrying out the implementation process, the motive would be to make the process smooth by responding to the soft issues like employee and other stakeholder issues. Overall, the motive would be to successfully fulfill the requirements of the shareholders with a sustainable growth for the company itself. Management Hubris Do you possess hubris? Explain your answer. Hubris refers to the overconfidence of the managers. The managers of the acquiring firms may think that they are more capable to manage the target firm’s assets than the managers of the same (Peng, 2008, p.344). However, this can only create issues rather than creating any benefit for the acquiring firm. It is better to be confident on one’s capabilities; however, in the countries like China, it is pretty important to keep the local managers on board as they are more accustomed to the culture and market in there. The acquisition would be a sheer failure if the acquiring company would not have enough faith on the local managers. Success of the Acquisition How would you ensure the success of your acquisition? The success of the acquisition would depend on the proper following of the steps in the acquisition process. The bidding company must do out enough research on the target country and the target company to make the right decision. The evaluation of the company’s resources as well as assessment of the country’s political, economic, social, technological and environmental factors is significant to make the acquisition process a success. In the implementation phase, proper communication, nurturing the resources and integration of all the processes, resources and systems would bring in success for the bidding firm. Each acquisition is different and one cannot say what works and what does not. However, planning, communication, implementation and integration of all the stages are expected to bring in success in acquisition (McDonald, Coulthard & Lange, n.d., p.1-4). Reference Hubbard, N. (2001). Acquisition Strategy and Implementation. Purdue University Factor. McDonald, J., Coulthard, M. & Lange, P. (No Date). Planning for a Successful Merger or Acquisition: Lessons from an Australian Study. Retrieved from: http://www.gbata.com/docs/jgbat/v1n2/v1n2p1.pdf Pande, A. & Krishnan, S. (No Date). Knotted Forever. Retrieved from: http://stdwww.iimahd.ernet.in/~sandeepk/merger.pdf Peng, W., M. (2008). Global Business. Cengage Learning. Virani, V. (No Date). Mergers and Acquisitions - A Case of System Failure. Retrieved from: http://www.indianmba.com/Faculty_Column/FC632/fc632.html Read More