Linkage between Mergers and Acquisitions with Share Prices and Stock Markets - Case Study Example

Topic B: Mergers and Acquisitions Table of Contents Introduction 3 Case Study Based on North America 4 Theories of Mergers and Acquisitions 7 Linkage between Mergers and Acquisitions with Share Prices and Stock Markets 9 Conclusion 12 References 13 Introduction The notion of mergers and acquisitions has constantly remained to be a leading and prevailing development strategy for various organisations operating worldwide. Mergers and acquisitions have become one of the preferred procedures for the purpose of attaining remarkable growth as well as comforting the chief shareholders of the organisations by raising their value to a significant level (McDonald & et. al., 2005). Mergers and acquisitions are also known as “M&A” that engages certain valuable aspects that include purchasing, selling and combining of organisations. The organisations have realised that by performing mergers and acquisitions, they can assist, support, finance and help each other while operating their business functions (Gersdorff & Bacon, n.d.). It has been identified that merger and acquisition is one of the principal and renowned transaction methods particularly in the field of corporate funding. Merger and acquisition has been one of the fastest methods through which an organisation may expand largely. There are many organisations that prefer mergers and acquisitions in order to enhance as well as to raise their internal development. Thus, it can be stated that merger and acquisition plays a crucial function towards the organisations while operating their business activities worldwide (Salina, n.d.). In the paper, a brief overview of the conception regarding mergers and acquisitions and a case situation of a merger or acquisition based on the North American company of Emptoris which was implemented within the last five years is taken into consideration. Various aspects such as the factors behind mergers and acquisitions, theories, strategies, benefits, factor of share prices in stock markets and other relevant aspects that are linked with mergers and acquisitions are also taken into concern in the discussion of this paper. Case Study Based on North America Emptoris, which is now known as ‘Emptoris, an IBM Company’, after its acquisition by IBM in the year 2011, is taken into concern in this case study of mergers and acquisitions. Generally, Emptoris, an IBM Company, is regarded as one of the principal business leaders which acts as a developer and a supplier of strategic and contract management software solutions. The company delivers precise, single and strong source of ‘spend analysis’, ‘contract management’ and ‘supplier data and intelligence software solutions’ (Emptoris, 2012). The different software solutions of Emptoris enable every organisation as well as individual in order to make most favourable solutions along with important decisions and also present greater value and performance across the global business enterprise. Emptoris is surrounded by remarkable and well organised senior management work groups who are dedicated towards offering superior services to the customers, generating world class technological skills and constantly designing new products (Emptoris, 2012). The various services and products of Emptoris include ‘spend analysis’, ‘contract management’, ‘services procurement’, ‘telecom expenses management’ and ‘sourcing’ among others. It has been identified that Emptoris offers world class and highly demonstrated products that significantly help and support the company to transact with other global companies (Emptoris, 2012). The current customers of Emptoris include Anglo American, Boeing, Heinz, Motorola, Delta and Exostar and several other highly reputed companies (Emptoris, 2012). The deliverance of world class and remarkable services and products of Emptoris to its broad range of customers eventually made the company to attain numerous prestigious awards as well as appreciations. The several awards as an appreciation that the company attained include a recognition for demonstrating tech modernisation and administration strength in the event “Red Herring-Global 100” and acknowledgement by “Inc. Magazine” as one of the quickest advancing private organisations especially in the United States (Emptoris, 2012). From the perspective of the conception of mergers and acquisitions, it has been identified that IBM declared its acquisition of Emptoris Inc. It has been recognised that in the year 2011, IBM announced a deal in order to acquire Emptoris (IBM, 2012). According to the viewpoint of IBM, they believed that the acquisition would enlarge one of the basic offerings of IBM i.e. “cloud based analytics” offerings that presents supply chain intelligence software solutions. IBM also believed that this particular acquisition of Emptoris can lead to better cost efficiency and proper inventory administration within their organisation (IBM, 2012). In terms of the acquisition process of IBM, the different potential products of Emptoris became a part especially of “Industry Solutions Smarter Commerce” department within the ‘Software Group’ of IBM. As a result, the “Industry Solutions’ Smarter Commerce” department within the ‘Software Group’ of IBM would add new capability towards enhancing the various services towards the clients of IBM in the supply chain management (IBM, 2012). The acquisition of Emptoris which has been made by IBM largely affects upon the business partners of Emptoris. IBM intends to grow and enlarge its business operations through skilled business partners which can also facilitate IBM to attain their expected objectives and goals (IBM, 2012). As IBM works to make their best deliberate efforts in order to attain their expected outcomes on the basis of the technology of Emptoris, the business partners of Emptoris are encouraged to establish a deeper understanding and strong association with IBM. This important aspect may make the working team of Emptoris to be organisationally fit with IBM. The working team of Emptoris may deliver certain valuable outputs especially regarding the supply chain management and other working procedures, which would eventually raise the productivity of IBM (IBM, 2012). One of the noteworthy factors behind mergers and acquisitions lie in the cultural aspects. The cultural aspects relating to mergers and acquisitions can be considered from both national as well as organisational levels. The other aspects of mergers and acquisitions include the organisational structure and the performance of the organisation. In lieu of the acquisition of IBM with Emptoris, it can be stated that the cultural factors would eventually affect the organisational structure as well as the performances of IBM (Majidi, 2007). The human aspects are also one of the significant factors in the conception of mergers and acquisitions. It is obvious to the fact that any merger or acquisition can fail to reach their targeted goals due to the aspect of underestimated human factors. It has been identified that the main purpose for the failure of most mergers and acquisitions is due to the problems relating with the employees’ or the workforce within a particular organisation (Kusstatscher & Cooper, 2005). Thus, it can be stated that the human as well as the cultural factors among other various factors are most significant as well as important with regard to the aspect of mergers and acquisitions to a certain extent. Theories of Mergers and Acquisitions There lie various theories behind the purpose or the motive of executing mergers and acquisitions for every organisation. From the viewpoint of the theoretical framework of mergers and acquisitions, it has been identified that mergers and acquisitions is the outcome of business decisions that ultimately benefit the shareholders of the organisations and others (Ray, 2010). In relation to different theories of mergers and acquisitions, it can be said that the ultimate purpose of merger and acquisition is to generate synergy. By adopting the policy of merger, the different organisations might acquire the capability to enhance the overall competence of the organisation. The conception of synergy can be attained through the execution of economical, operating and management synergies. This particular aspect of synergy is known as the “theory of efficiency” of mergers and acquisitions (Ray, 2010). The other theory of mergers and acquisitions is the “monopoly theory”. This particular theory depicts that the organisations agree to perform mergers or acquisitions to attain their market strength and act accordingly to the theory of monopolisation. The positive effects of monopolistic market position can be attained through making restrictions into the markets where an organisation becomes full participant through acquisitions (Ray, 2010). The other theory relating with mergers and acquisitions is the “valuation theory”. In this theory, mergers and acquisitions generally happens due to the fact that the corporate values or the business values of an organisation are greatly considered. The investors acquire the companies in the form of acquisition whose products are undervalued in the market, in order to raise their value as well as the interests regarding the products. From this particular viewpoint, there lies a significant investment decision in order to invest or to get hold of other companies which ultimately increases the value of the shareholders or the investors (Ray, 2010). The other theory of mergers and acquisitions is the “process theory”. It has been recognised that mergers and acquisitions is the ultimate outcome of composite procedures of decision making. The “process theory” depicts that the individual participants of an organisation plans to approach new problems with existing strategy (Ray, 2010). The other theory of mergers and acquisitions is the “disturbance theory”. The theory of disturbance depicts that by conducting vertical or horizontal mergers, market control can easily be attained. According to the “disturbance theory”, the various macro-economic shocks as well as diverse other related disturbances ultimately transform the expectations and the attitudes of the management of an organisation by generating a financial atmosphere within an organisation (Ray, 2010). It has been recognised that there were numerous formations of merger waves and each of the waves was noticeably diverse from the other. The phenomenon of the merger waves comprises certain important aspects such as arbitrage, currencies, accounting and deregulation among others. However, the role of the merger waves is regarded as a fundamental part of market capitalism and there has been a constant execution of merger wave activities that occur within the organisations (Ray, 2010). Linkage between Mergers and Acquisitions with Share Prices and Stock Markets On the basis of short run stock performances, the shareholders of the acquiring company such as IBM in this particular cases study is often regarded as the “big winners” in mergers and acquisitions because the acquiring company eventually earns noteworthy and encouraging profits. It is due to the fact that the policy of mergers and acquisitions raises as well as improves the value of the shareholders to a significant level (Bouwman & et. al., 2003).0 In terms of the share value prices, there lies a considerable effect of mergers and acquisitions especially in the share prices. The practices of merger or acquisition along with merger waves ultimately raise the share price and the price-earning ratio of an organisation. It has been identified that if at a specific period, the shares of certain organisations get undervalued then the organisations opt for the method of mergers and acquisitions to a certain extent (Bouwman & et. al., 2003). In terms of the financial objectives and the strategies of IBM, there lie certain significant targets behind the reason for IBM to acquire Emptoris. As the acquisition is the latest edition of IBM’s initiative of “Smarter Commerce”, IBM strives to increase its value of the shareholders’ along with to maintain more successfully their supply chain management (IBM, 2012). The initiative of “Smarter Commerce” of IBM is regarded as one of the exceptional outlooks that raised the company’s values along with the customers, shareholders and business partners of the organisation. The initiative has been designed in order to support the company to organise and to manage the value chain procedures along with to increase the revenue and the marginal growth of the company (IBM, 2012). In this connection, the acquisition of Emptoris would enlarge the various initiatives that have been executed by IBM which will ultimately manage the procurement expenses and other related costs. Moreover, the acquisition of Emptoris would also enhance the administration as well as the managerial aspects of the supply chain procedures (IBM, 2012). Moreover, the other objectives of IBM behind this acquisition of Emptoris lie in the fact that IBM firmly believed that the outcome of the acquisition of Emptoris would eventually increase its share values along with preserving a pleasant and a dominant position in the stock market. The acquisition of Emptoris would also enhance the different technologies that are possessed by IBM and would help it to perform global operations for the clients of IBM (IBM, 2012). Above all, it can be stated that the major and the most crucial organisational objective of IBM regarding the acquisition of Emptoris, lie in the fact that the company wanted to preserve their dominant market position along with raising their revenue i.e. marginal productivity (IBM, 2012). Conclusion The concept of merger and acquisition has become one of the primary initiatives for the different organisations to expand and to grow throughout the world. In this competitive business environment, where there lies utmost need for the organisations to enter into new markets along with to raise the shareholders’ values, many organisations adopt the policy of mergers and acquisitions to a certain extent. After acquiring a brief idea and visualisation of various researches that have been conducted regarding the processes of mergers and acquisitions, it has been identified that mergers and acquisitions generated a win-win situation from the viewpoint of the stakeholders of the organisations. Thus, it can be concluded that mergers and acquisitions do not generate instant wealth to the shareholders but a particular organisation would be able to cope up better with market competitions and would be likely to grow remarkably in the changing business environment. References Bouwman, C. H. S. & et. al., 2003. Stock Market Valuation and Mergers. Winners & Losers in M & A. [Online] Available at: http://web.mit.edu/cbouwman/www/downloads/StockMktValuationAndMergersMITSloan.pdf [Accessed March 13, 2012]. Emptoris, 2012. About Emptoris. Overview. [Online] Available at: http://www.emptoris.com/about-emptoris/overview [Accessed March 13, 2012]. Emptoris, 2012. About Emptoris. Leadership. [Online] Available at: http://www.emptoris.com/about-emptoris/leadership [Accessed March 13, 2012]. Emptoris, 2012. Products and Services. Products. [Online] Available at: http://www.emptoris.com/products-and-services [Accessed March 13, 2012]. Emptoris, 2012. About Emptoris. Customers. [Online] Available at: http://www.emptoris.com/about-emptoris/customers [Accessed March 13, 2012]. Emptoris, 2012. About Emptoris. Awards and Recognition. [Online] Available at: http://www.emptoris.com/about-emptoris/awards-and-recognition [Accessed March 13, 2012]. Gersdorff, N. V & Bacon, F., No Date. U.S. Mergers and Acquisitions: A Test of Market Efficiency. Introduction. [Online] Available at: http://www.aabri.com/manuscripts/09142.pdf [Accessed March 13, 2012]. IBM, 2012. IBM Completes Acquisition of Emptoris to Expand Smarter Commerce Initiative. News Releases. [Online] Available at: http://www-03.ibm.com/press/us/en/pressrelease/36637.wss [Accessed March 13, 2012]. IBM, 2012. IBM Introduces Next Wave of Cloud Computing For Business. Press Kits. [Online] Available at: http://www-03.ibm.com/press/us/en/presskit/27700.wss [Accessed March 13, 2012]. IBM, 2012. IBM Acquires Strategic Supply Management Leader Emptoris. IBM Software. [Online] Available at: http://www-01.ibm.com/software/commerce/emptoris/ [Accessed March 13, 2012]. IBM, 2012. Alliance Solutions. Why IBM for Alliance Solutions. [Online] Available at: http://www.ibm.com/solutions/alliance/us/en/?cm_re=masthead-_-business-_-bp-more [Accessed March 13, 2012]. Kusstatscher, V. & Cooper, C. L., 2005. Managing Emotions in Mergers and Acquisitions. Edward Elgar Publishing. Majidi, M., 2007. Cultural Factors in International Mergers and Acquisitions. The International Journal of Knowledge, Culture and Change Management, Vol. 6, No. 7, pp.1-17. McDonald, J. & et. al., 2005. Planning for a Successful Merger or Acquisition: Lessons from an Australian Study. Journal of Global Business and Technology, Vol. 1, No. 2, pp.1-11. Ray, K. G., 2010. Mergers and Acquisitions. PHI Learning Pvt. Ltd. Salina, M., No Date. Mergers and Acquisitions: A Trinidad and Tobago Case Study. Introduction. [Online] Available at: http://www.ccmf-uwi.org/files/publications/conference/2010/9_2-Salina-p.pdf [Accessed March 13, 2012]. Read More