Imperativeness of Mergers in the Current Business World - Research Paper Example

? Merger analysis Task This paper provides insightful information pertaining to the imperativeness of mergers that are gaining prominence in the current business world. The approach is used as a performance strategy since it enables institutions to combine resources and the requisite synergies with an aim of enhancing competitiveness. Mergers are formulated on mutual ideals and set guidelines that are evaluated properly. The growing trend proves promising for institutions that seek for exemplary growth. In particular, this paper focuses on two selected health institutions (Georgia Baptist health center and Grant health care) that are located in US. The two institutions are chosen due to their complimentary support capacity that they hold that would see them receive immense benefits from any strategic alliance or agreement. The institutions provide health care services and were founded with a core mission to offer quality, affordable and timely Medicare to patients. They focus on community outreach programs, research on various medications, provision of cancer services, coronary care, digestive and nutritional support. The paper also analyses their financial status based on the strength of their financial performance. It also evaluates the key ratios and the need for ensuring effective setting of debt collection period. Introduction Business merger is a performance strategy whose practice in gaining momentum in most settings due to its relevance in the current competitive society. The strategy provides viable incentives and synergies that enable organizations to improve on their standards of performance. Indeed, institutions with strong aspirations to recording vibrant performance levels should adopt the strategy. This is vital since it gives credible systems of engagement and operations that facilitate exemplary performance. It is imperative to note that mergers are strategic agreements between institutions that are set with an aim of enhancing service delivery and productivity. The agreements are driven under quality ideals and mutual understanding to ensure that the ultimate objectives are achieved. In most jurisdictions, for example, in US, mergers and strategic alliances remains innovative system of acquiring competitiveness and improvement on service delivery. The idea is under exploitation and is executed innovatively by various institutions. It has seen key institutions or organizations in diverse field of operations including health sector develop into vibrant corporations through consolidation of their potentials and synergies. The institutions have increased their performance capacity and service delivery systems to match the need of the consumers. In particular, the two health institutions that would materially benefit from this initiative are Georgia Baptist health care and Grant health organization. The two organizations would benefit from the initiative since they are set with pertinent mission and they hold complimentary capacities. That is Georgia heath care operate strong cancer clinics, coronary care centers and cancer treatment facility with limitation of financial or asset capacity for expansion that Grant health center has. This explains why the merger between the two institutions would yield quality results that would revolutionize service delivery in the health sector. The Companies, Justification and Imperativeness of the Merger As noted, the two companies selected for this study (Georgia health center and Grant medical center) are bound to receive substantial benefits from the merger initiative. This is evident since the institutions have strong complimentary synergies that would steer development of health services. They would pull up and share resources to ensure that quality services (Smith 1997) are delivered to in US citizens (Harris2006). The corporations are founded under strong mission to provide quality healthcare through adoption of conventional health care systems and resources. They seek to expand research on health issues to facilitate the provision of effective nursing care to patients. In particular, Georgia health care (GHC) that operate quality cancer clinics, coronary centers and counseling services have been facing challenges in expanding its patient coverage. The health center has been facing low financial incentives and infrastructural set ups to steer its service delivery (Harris2006). That is its current state requires acquisition of more funding and support systems to facilitate the attainment of its intended performance levels. Variably, Grant health center is an institution that boasts of quality health infrastructure and immense financial capacity. The center has strong capital base and quality resources ranging from health personnel that deliver quality services. This explains why the merger between the two institutions would yield immense fruits or benefits. That is the merger would see them combine forces and develop a strong centralized institution with the capacity to solving patients issues on a timely basis. Indeed, Grant health care would help in providing the requisite financial and infrastructural support to aid delivery of quality services under Georgia Baptist health care portfolio. The service portfolio that would receive a substantial boost include cancer treatment services, coronary health care and counseling programs that nearly stalled due to lack of adequate resources. Therefore, the merger would facilitate delivery of quality and affordable healthcare services to patients in the US. Analysis of financial statements of the institutions Harris (2006) noted that mergers are performance strategies that institutions enter in to boost their financial capacity and performance levels. Its consideration should be after the assessment of an institution’s financial performance. This is executed by performing in-depth analysis on the financial statements and statements of accounts that give the fair value of the institution. The assessment enables individuals or managers to establish whether there is a possibility for expansion or growth. This advances their decision making process that defines the course of action. In review of the financial statements of the two health organizations, positive results have been recorded. The financial statements of the health institutions present growth trends with Georgia Baptist health center recording appositive liquid ratio. Its asset base that was valued at US$ 85.457 was remarkable in recognition to its strength. It also recoded a low value of liability obligations that show how well resources were managed (Smith 1997). However, its performance cannot be compared to the performance capacity of Grant health center that has an immense resource base. The health center also recorded appositive and high growth in the previous financial reports. It had a strong cash flow report with suitable asset base valued at US$ 27,052.416 and low liability obligation. The organizations have strong potential for growth that should not be compromised. They hold complimentary capacities and incentives that if combined would deliver a vibrant health organization that can be of considerable significance to the society members. Evidently, the organizations have positive financial performance that depicts the effectiveness of their management. This explains why they can make better partners that can help in improving delivery of quality health care to locals in US (Smith 1997). In assessing their operations, the two institutions have had a positive record of accomplishment of operations since their inception. They have increased their coverage in terms of health care provision and mobilization of funds for nursing projects. This has seen a complete transformation of the health sector in US that is attributable to continuous research on key diseases with an aim of finding amicable mitigation measures that are sustainable. It is imperative to note that Georgia has used its limited resources since its inception, to develop the first cancer clinic in the region. It has also used its limited resources to enhance the operations of its coronary and counseling services. This explains how it remains a viable institution that would grow immensely if the requisite support were provided. On the other hand, Grant health center has also had a remarkable growth path that has seen its operations expanded and support systems improved (Smith 1997). It has managed to mobilize large amount of resources that have been instrumental in funding digestive and nutritional health complications. The resources have also facilitated medical research programs on various diseases that are vital in ensuring the realization of quality medication to disease that affects individuals. Analysis of the institutions based on debt capacity, Equity financing and capital structure As noted, a company’s performance strength and sustainability is known through evaluation of its financial statements. The evaluation of the key elements and rations contained in the financial statements enable individuals to establish a company’s operating potential. Indeed, the two organizations have growth potential if amicable strategies are adopted to help in steering their operations especially in Georgia health center. The health center must adopt quality operating techniques to enable it regain its performance momentum (Harris 2006). This is critical since the institution has been in operation for along time but as recorded dismal expansion. The dismal expansion is attributable to the company’s high debt portfolio and weak equity financing strength. That is the institution has enormous un-reconciled debts that are owed to donors and other service providers. Its debt capacity is presenting a negative impact in its financial statements that reports a slow growth in terms of the asset base and liquidity development. The institution also has a weak equity financing since its finances are derived from donors who contribute more than 45% of its operating resources. It has limited resource base that hinders its capacity to recording high cash inflows and equivalent. In this regard, the institution should develop viable modalities to cushion its debt capacity and donor borrowing (Kruzas 2007). This is to ensure that it is independent and can facilitate its operations with limited setbacks. The viable options are for the institution to identify or pursue vibrant sources of finance or engage in strategic mergers or alliances. This is to; boost their capital base that also remains weak to a high level. Although, the health care center has been recording appositive financial value, its capital structure is weigh below threshold in comparison to Grant health center. It records an inferior capital structure that cannot facilitate its aspired growth. Its capital base stands at US$ 85.457 against the Grants capital structure that is valued at US$ 27,052.416. This also explains the need for it to merge its services with Grant health center that has immense capital base (Bekank & Holland 2009). Imperatively, Grants health care’s financial strength and operating guidelines are well developed under strong performance orientation. This has enabled the institution to record exemplary capital capacity and management of its debts. The institution has limited debt obligations that enable it to divert its resources in advancing service delivery. This has also enhanced its equity financing capacity that is dependent on the percentage variance between inflows and outflows in various institutions. That is, institutions that ensure effective administration of outflows of the diverse nature hold the capacity to upscale their investment portfolio and in turn enhance equity sources of finance. This element is a crucial aspect that has steered the institution to its current position. It has strong investments that contribute to its equity finances with low expenditure on debts. The two companies would make an excellent combination due to their strengths and financial management capacities that are credible. Analysis of the Capital Structures of the Institutions Comparatively the institutions have positive capital structures that explain their viability. Grant health center has a capital base of US$ 27,052.461 while Georgia health center or the Georgia Baptist health center has a capital structure of $85.457. The capital strength of the institutions contributes in supporting their activities that include community outreach and provision of cancer treatment. It is imperative to note that institutions that seek to record effective performance should build on their capital structure and minimize expenditure undertakings (Kruzas 2007). This is to ensure that the available resources are consolidated effectively with an objective of facilitating their optimal usage. The review of the two organizations’ capital base gives an insightful revelation. The two organizations have relatively incomparable capital structure with Georgia Baptist health center’s capital strength recording low figures in comparison to Grant health center’s estimates. Indeed, the low capital structure that Georgia Baptist health center institution is exhibiting is impeding its progress and expansion of Medicare services. The institution cannot grow since its capital capacity cannot match its debt portfolio effectively. Consequently, Georgia health center’s cost of capital contributes to its low capital structure. The cost of its finances is affecting its growth since the available resources (Kruzas 2007) that can be used for expansion are used in settling repayments (Bekank & Holland 2009). The product of the cost of borrowing and other variable overheads contributes in weakening the organizations capital base and capacity for investment. The institution cost of borrowing and general expenditure hold small difference with its asset value. That is, its liquidity ratio is low for an institution that aspires to improve the lives of individuals through the provision of quality universal health services. In review of grants capital base and cost of capital, it is evident that the institution records low cost of capital. That is the institution’s cost of capital is below the capital structure. (Bekank & Holland 2009) It manages its debt and expenditure items properly with an aim of securing low cost obligation. This has enabled the institution to minimize on liability expenditure and maximize on returns. Its liability obligation stands at 10% below the percentage representation of the working capital. The analysis of the financial capacity and cost of capital of the two institutions gives a clear indication that Georgia needs support in diverse perspectives, for example, on financial terms. This is to; boost its capital structure and asset base that is fundamental in achieving its mission. Therefore, a merger between the two firms would help in sharing of operating incentives that would advance service delivery to widen the scope of operation (Bekank & Holland 2009). Risk analysis regarding the merger Mergers and strategic alliances present various risks that require proper evaluation by authorities before making formal commitments. The risks that range from operation autonomy to resource control must be evaluated prudently. This is to; ensure that any engagement does not lead to unwarranted failures that may compromise progress of the institutions (Shustack 2012). The two selected institutions that operate in the health sector should evaluate the evident risks that may compromise their engagement. The institutions should ensure that their quest of building strong operating synergies is not stalled. That is, they should analyze the risks that may impede their engagement especially the financial risk. The institutions have enormous financial difference and management styles that may pose difficulty. The institutions also have strong identities that they may want to retain even after the merger. The identity issue is an eminent risk in strategic alliances that have led to the collapse of various institutions. This has seen most institutions preferring to employ a cautious approach when developing the terms of agreement in any arrangement. The companies also have divergent performance or operating strategies that may present immense risk to their unity (Shustack 2012). The process of finding an amicable operating guideline always results to immense disagreements between parties. It remains an eminent risk that institutions are facing. Consequently, the development of the modalities that guides sharing of resources is a risky affair that may affect the institutions ability to merge. Analysis of the content of account receivable and recommendations Accounts receivable must be managed effectively if meaningful growth is to be realized. Managers and accountants should apply conventional techniques of cash collection to ensure that accounts receivable is active and vibrant. This is vital since accounts receivable is the lifeline of any business or a commercial entity. It entails setting of realizable and reasonable periods of debt repayment periods or collection (Shustack 2012). The periods should be set effectively to ensure that institutional resources are not written-off prematurely. In particular, the two institutions under study must ensure that their debt collection periods are reduced even after the merger. That is, the institutions should reduce the number of days under which they update their receivable accounts. This is to avert the risk of running a receivable account that operates on deficit amounts of capital. It is recognizable that account receivable is the key driver of operations in institutions. It forms a key contributor of operating finance that explains its significance. Indeed, institutions with inferior accounts receivable value operate in the brinks of precipices. Such institutions cannot match their expenditure requirements with available cash inflows that may lead to low performance or reduction on growth prospects (Shustack 2012). Therefore, the two institutions should develop viable cash collection periods that are favorable to all stakeholders. Their interest should be to acquire the outstanding resources to aid planning and expansion initiatives. It recommended for the merger to ensure that the cash collection periods is set within 30 days from the date of credit sales. This will enable the institutions to develop an effective plan of activity based on the available resources. Explanation of the Financial Ratios Accounting ratios are the basic indicators that accountants and various individuals evaluate when assessing the level of performance in institutions. The ratios give clear comparative values that hold credibility (Bekank & Holland 2009). The ratios that are commonly used in evaluating performance include liquidity ratio, decisive test ratio (ATR), debt collection ratio and current ratio. The ratios are computed using the figures that are realized in the financial statements. They show the level of growth or reduction in terms of performance that help managers in decision-making. An institution is said to have appositive performance if its principal ratios record appositive index. That is if the ratio for the current period is higher that the previous ratings and record appositive trend (Bekank & Holland 2009). Ideally, the ratios mentioned above are the key indicators that are used in assessing the performance level in the two institutions. They were computed systematically through credible accounting approaches that led to the realization of reliable results. The ratios in the two institutions as reported recorded positive figures and percentage growth levels that was remarkable. Georgia Baptist health center recorded 1:2.11% liquidity ratio, 0.02% acid test ratio and 23 days debt collection period. This shows that the institutions asset base was higher that its obligations or liability value. However, Grant health center recorded 1; 19.50% liquidity ratio, 0.043% acid test ratio and 21 days debt collection period. The value of the ratios depicts the institutions as performance oriented settings that would record rapid growth if amicable performance strategies were adopted. Conclusion Indeed, institutions are increasingly engaging in the formulation of business mergers and strategic alliances. They execute the strategic agreements as a performance measure in ensuring that their services are leveraged. They also execute the agreements to increase their resource base by pulling up resources with an aim of increasing service portfolio. Mergers enable institutions to generate the requisite competitive synergies that are vital in driving performance in the competitive world. It gives business people opportunity of exploring and expanding their market share and product distribution. Scholars affirm that, institutions that experience diverse constraints that hinder their performance should engage in the formulation of strategic alliances. They should identify credible partners with complimentary resources that can boost performance if merged together. The strategic agreements have driven most institutions to a greater height of performance. The alliances have also opened the competitive space by creating formidable competitors with sufficient resources. Appendix Financial ratios Ratios Grant health center Georgia Baptist health center Liquidity Ratio= Current Assets/ Current Liabilities 12,052.400-618.290= 1 :19.50 31.257-14.825=1 :2.11 Acid Test Ratio= Current Assets- Current Liabilities/ Total Assets 12,052.400-618.290/27052.416= 11434.11/27,052.416= 0.043% 31.257-14.825/85.457= 16.44/85.457= 0.02% Debt collection period= Debt collected/debt amount x 365 day 21 days 23 days References Bekank, C & Holland, j. (2009). United Way of Metropolitan Atlanta INC. Consolidated Financial Statement. Retrieved from Harris, G. (2006). Georgia Baptist Health Care System has become a hospital without walls Retrieved from Grand Health care Foundation. (2004). Financial Statements December 31, 2003 and 2002. Retrieved December 9, 2012, from http://www.granthealthcare.org/pdfs/GHF_Financial_Statement.pdf Kruzas, A. T. (2007). The Baptist Health Care Journey to Excellence: Creating a Culture that WOWs!. New York (NY): John Wiley & Sons. Smith, T. (1997). Keeping an ear to the ground: Georgia fitness center adapts to health care market changes. Health Care Strategic Management, 15(7), 14-5. Retrieved from Shustack, M. (2012). Grant enables family health center to expand sites, services. Westchester County Business Journal, 48(29), 15-15. Retrieved from http://search.proquest.com/docview/1033165672?accountid=45049 Read More