Benefits and Risks Associated with the Acquisition of Galaxy Pharma by Vibrant Ltd - Example

REPORT ON THE BENEFITS AND RISKS ASSOCIATED WITH THE ACQUISITION OF GALAXY PHARMA BY VIBRANT LTD by Student’s Name Code + Course Name Professor University City/State Date REPORT ON THE BENEFITS AND RISKS ASSOCIATED WITH THE ACQUISITION OF GALAXY PHARMA BY VIBRANT LTD Executive Summary With the current trend of globalization, international mergers and acquisitions have become a daily transaction affair, with large companies venturing into such transaction to gain profit and expand production and growth. Despite the risks associated with acquisitions, research has shown that company can benefit from such transaction if carefully evaluated and implemented. Vibrant Ltd, a Canada-based pharmaceutical company is planning to acquire Galaxy Pharma, a Japan-based pharmaceutical company. Since the two companies are majoring in producing the same products, the acquisition process will be easy since there will be little changes in operations and technology. Therefore, the company stands to rip many benefits from this acquisition such as reduced costs, personnel diversification, expansion of market reach, and increase in production among others, if done with carefully considerations. However, the company may incur costs and be negatively impacted by the acquisition opposite to what is anticipated, if the risks associated with the acquisition are not evaluated and solutions found prior to the commencement of the process. Letter of Transmittal Dear Mr/ Mrs/Miss (manager of Vibrant Ltd) Enclosed is the report you commissioned on the benefits and risks associated with the acquisition of Galaxy Pharma. The main findings of the report are as listed below: Benefits The company stands to benefit from cost saving; The risks of entry barriers are minimal through an acquisition; The company will expand its market and receive a better recognition; Its production will rise; It will have diverse personnel with diverse ideas and experience. Risks There are integration issues that might derail the acquisition process making it very costly; The company may face adverse cultural conflicts; The two companies may have diverse service lines that might take time to fit together; Managing diverse personnel may take time and consume resources more than anticipated. There were no field visits to Galaxy Pharma since the report is mainly based on the information contained in the Internet, journal articles, company annual report, and studies. I acknowledge the assistance of the vibrant management team for their support. Finally, I thank you for the chance to acquaint myself with Vibrant Ltd, its working environment and employees, and of importance, the research skills, which I gained through this experience that will be significant in my future projects. Regards (Student’s name). The Report Benefits of Acquisition Vibrant Ltd is not the first company to venture into international acquisitions. Research shows that many of the large companies have ventured in cross-border acquisition and mergers because of the various benefits associated with such business strategy. According to Rossi and Paolo (2004, p.278), the main aim to venture into cross-border acquisitions, is to increase its efficiency and production. Like most companies, Vibrant Ltd priority is to grow profit and is willing to take significant measures to realize this objective. Well-planned international acquisition is one way that a company can achieve this objective and is the venture Vibrant Ltd has decided to take. It majors in producing drugs and a variety of health care products. On the other hand, Galaxy Pharma, the pharmaceutical company based in Japan, which Vibrant Ltd plan to acquire, is also majoring in producing the same products. According to Tanakorn (2010, p.57), acquiring a company in the same industry is beneficial to the buyer. Such an acquisition allows the company to increase the scale of production since the production of the two or more companies will be brought together. Another advantage that Vibrant Ltd will gain by acquiring Galaxy Pharma is that the process of joining the operations of the two will be easy. The two companies are producing the same goods and offering the same services. Therefore, their operations are similar; hence, combining them will not require so much technological and operational adjustments. According to Harzing, Vibrant Ltd will gain by acquiring Galaxy Pharma since there will be no costs incurred in acquiring new technology since the operations of the companies are almost similar (2002, p.222). By venturing into the Japanese market, Vibrant Ltd can use its trademark, which is well known in Canada to obtain a large market in Japan. There is high possibility that once Galaxy Pharma has been labeled with Vibrant Ltd trademark, it can easily attract customers meaning that the production of the company goes high (Coeurdacier, Roberto, & Antonin, 2009, p.62). By acquiring Galaxy Pharma, Vibrant Ltd will not only increase its production, but will also expand its market reach (Brouthers & Brouthers, 2000, p.91). After acquiring Galaxy Pharma, Vibrant Ltd will have extended its market in Japan and the surrounding nations. This will increase the customer base and its popularity. According to Aizenman and Marion (2004, p.128), by enlarging the scale of services to other countries a company does not only enlarge its market but also attracts varied professionals with great talents and skills. Bringing together such professionals means that diverse, new, innovative, and great ideas are brought into the company, hence assist in achieving the set organizational goals and objectives. From the financial state of Galaxy Pharma, it has large unutilized capacity, which Vibrant Ltd will acquire at a fair price. According to Blandon (2001, p215), a company stands a chance to access funds and even valuable assets for new development through acquisition. This researcher argues that better production amenities are a lot less costly to buy than to build. Therefore, Vibrant Ltd will be saving a lot by acquiring Galaxy Pharma instead of building a new production facility in Japan. Aizenman and Marion (2004, p.127) argue that, acquisition helps a company in meeting their stakeholders’ expectations. In some cases, stakeholders may have prospects of growth through acquisitions. Despite that not all stakeholders will persist on acquisition as strategy of growth, in most instances, stakeholders expect benefits, investments, and advantages for non-investing stakeholders. Research has shown that when a company is experiencing pressure to improve performance and meet stakeholders’ expectations, an acquisition is always a good business strategy to employ since it generates results more promptly compared to other means for growth. If Vibrant Ltd chooses to establish its own facility in Japan, it might encounter some challenging market entry barriers. According to Coeurdacier, Roberto, and Antonin (2009, p.64), a company establishing itself in a new market for the first time is bound to face some barriers such as competition, fear of consumers purchasing goods and services from a provider they barely know, just to name but a few. Risks of Acquisition However, it is important to point out that Vibrant Ltd will have to take some risks in acquiring Galaxy Pharma. According to Brouthers and Brouthers (2000, p.93), a company’s returns may fail to satisfy and meet stakeholders’ expectations as anticipated. As mentioned earlier, Vibrant Ltd is to benefit from this acquisition through cost saving. However, there are instances when a company fails to cut on costs through acquisition due to various developing factors (Rossi & Paolo, p.2004). According to Tanakorn (2010, p.61), some integration issues may pose some challenges to the acquisition of Galaxy pharma by Vibrant Ltd. Some of these include cultural conflicts might explode and the activities of Vibrant Ltd may not interconnect well with those for Galaxy pharma as anticipated. Apart from outside resistance, internal resistance may arise when employees try to resist the acquisition due to their various judgments on the outcomes of the acquisition. Despite that, the two companies produce the same products, Vibrant Ltd might face some distraction emerging from its operations. If this particular acquisition faces too many challenges or the process takes a long time to complete, then too much of the managerial focus is directed from internal development and day today operation of the company to making the acquisition work and become a success. The company may end up being affected negatively in terms of finances since it may run out of administrative resources, resulting in fewer synergies and delays in savings achieved from such synergies (Nie 2013, par.3). Recommendations From the literature, many acquisition transactions may end being unsuccessful due to the various hurdles such as culture conflicts, integration issues, hefty costs, diverse services lines to name but a few. However, according to Harzing (2002, p.226), companies which have carefully evaluated the mode of entry and the benefits and risks associated with acquisition before venturing into such a transaction, have become successful. It should fully analyze the extent of the tactical fit with Galaxy Pharma, considering whether the business could be combined in such a manner to release satisfactory benefits as a single company. According to Gorg (2001, p-176), it is easy to combine companies with similar operations to realize many benefits since it does not involve many technological changes, hence less time. Effective communication is important while venturing into an international acquisition transaction. According to Aizenman and (2004, p.142), communication should be extensive to extend outside the boundaries of the companies involved in an acquisition to include clients, suppliers, local authorities, employees and investors. Vibrant Ltd should also evaluate the day-to-day particulars of the operations of Galaxy Pharma to ensure that they will fit well with its own daily operations. Such a consideration will help the company in unearthing any risks, which would have derailed the acquisition process (Rossi and Paolo, 2004, P.287). The company should then plan accordingly and come up strategies of overcoming the potential risks discovered to ensure the acquisition process runs smoothly with no wastage of time and resources. Conclusion In essence, acquisitions are an effective strategy for a company to expand its market and production when there are prior, intensive evaluation of all the benefits and risks involved. Vibrant Ltd stands to benefit much by acquiring Galaxy Pharma if it carefully plans its acquisition process and involves all the parties involved. The company should also ensure that there are proper communication lines for effective communication. Finally, the management should come up with solutions to various risks unearthed during evaluation stage to ensure that the acquisition transactions run as expected. It Ii Reference List Aizenman, J & Marion, N 2004, ‘The merits of horizontal versus vertical fdi in the presence of uncertainty’, Journal of International Economics vol. 62, pp. 125-148. Blandon, G 2001, ‘The timing of foreign dircet investment under uncertaity: Evidence from the Spanish Banking Sector’, Journal of Economic Behavior and Organization vol. 45, pp. 213-224. Brouthers, K. D & Brouthers, L 2000, ‘Acquisition or Greenfield Start-Up? Institutional, cultural and transaction cost influences’, Strategic Management Journal, vol. 21, no. 1, pp. 89-97. Coeurdacier, N, Roberto, A. D & Antonin, A 2009, ‘Cross-border mergers and acquisitions and European integration’, Economic Policy, vol. 24, pp.55–106. Gorg, H 2001, ‘Analysing foreign market entry: The choice between Greenfield investments Acquisitions’, Journal of Economic Studies, vol. 27, no.3, pp. 165-181. Harzing, A.W 2002, ‘Acquisitions versus Greenfield investments: International strategy and management of entry modes’, Strategic Management Journal, vol. 23, no. 3, pp. 221-227. Konings, J 2001, ‘The effects of foreign direct investment on domestic firms: evidence from level panal data in emerging economies’, CEPR Discussion Paper No. 2586. Nie, Z 2013, Evaluation of cross-border mergers and acquisitions, Available at: http://globaledge.msu.edu/blog/post/1544/ -of-cross-border-mergers-and-acquisitions Rossi, S & Paolo, F. V 2004, ‘Evaluation, cross-country determinants of mergers and acquisitions’, Journal of Financial Economics vol. 74, pp. 277–304. , Tanakorn, M 2010, ‘The dynamics of international mergers and acquisitions’, Working paper, University of Maryland. Read More