Thursday, May 16, 2019
Mergers and Acquisitions in Australia
A uniting is one of the forms of business combination. A mixr is the joining together of two or to a great extent companies for a common goal (Schencke, 2007). It enkindle be in the form of vertical desegregation, Horizontal integration or diversification. Consider the case of manufactured intellectual nourishment ( colewort) caller-up we bring in the flour participation, the bakery and a butter company.If the bread company acquires the flour company that would be vertical integration this whitethorn be more omnibus(prenominal) and uncivilized . The management is exceedingly involved because of the procedures involved and consequences too. This is a backward integration because it entrust be meeting with the supply source. It competency lead to restricted supply of raw materials hence inflexibility.If the bread company incisions producing cakes that would be horizontal integration this might be considered necessary in order to have a more product stock whereby the ir consumers departing now be able to enjoy more quality products from the same company. This will alter a particular bread company deal with its competitors because a variety of commodities will be acquirable to them.The company will alike command a more commercialise shargon because most of its products will dominate the securities patience. High market sh ar determines profitability because the Total cut-rate sales figure has a actor of units and sales atomic number 18 directly proportional to the profit margin. The particular bread company thus becomes a market leader and enjoys all the economies of scale. High record books can be produced at low termss and therefore the company becomes a market leader in the industry. The company can now have expeditious pricing policies for the different commodities that it is offering in the market.If the bread company starts producing butter to match with its quality of bread then that would be market diversification This end points in increased market capitalization which is very levelheaded for a company in the industry. This sort of grow fruit line whitethorn be bumpy and mutable because very little is known about that particular product line. This may call for comprehensive inquiry, which might be dearly-won for the holding company. Demand and supply factors of that particular company need to be understood and analyzed keenly to determine the future of such an operation and how relevant it might because this is a complimentary commodity.Merger or an acquisition leads to lack of competitiveness and would have a laid-back Herfindahl index. Industry slow-wittedness is also affected. In the case study above, one has reduced players in the industry referable to mergers. thence we find that theres no competition due(p) to acquiring of a supply chain, producing cogitate commodities or even engaging in the takings of complementary goods. Market diversification results to company be able t o control its expenditures for the different products it has with changing the profit.This shows that market forces do non determine prices and completion is at different levels. somewhat companies also become market leaders and may decide to lower its prices in the market at the expense of early(a) companies. The fact that a company can acquire a supply chain is harmful because this may limit resources/raw materials to other companies with in the industry or supply at inflated cost. A prices control board should therefore establish to deal with this. Some companies may be forced to quit production and this may lead to monopolies in the industry, which may not be healthy.Motives for mergers includeSynergy The expected synergism determines the purchase price for the acquiree. Synergy is the combined magnate of a group of companies when they are working together which is greater than the total power achieved by for each one working separately. Synergy can be operating synergy o r financial synergy. Operating synergy includes economies of scale and economies of scope, by merging firms are able to receive huge discounts due to extravagantly volumes of production and this results in high profits, this convey high price of shares and high market capitalization.Owning of supply channels agency constant supply of raw materials without delays and control over the prices. This indicates low cost of production and increased profits. universe a market leader may result into a monopoly and this means enormous profits. Discounts can be offered to customers and result in high sales due to high volumes. All these work to the favor of the acquirer. to a greater extent shareholders due to improved earnings per share lead to more funding and adequate cash flows are available. Synergy cant be compared to international expansion, which is slow. confluence is with firms already operating and with the required recourses so no lag periods experienced which might hinder th e rebelth and development of a company, which negates the image to the shareholders and other interested parties.There might be need to expand to another geographical location. The acquiring firm will look for firms in operation at that location to merge with in order to fasten the cunt period which normally due to lack of knowledge of business operations at that particular subject area and business smartness required. Horizontal integration in this case will be necessary. This might be after researching and identifying a possible business location. Suppliers will also be considered in this case. Financial synergy is however more questionable due to the uncertainty of business operations.Merging may be for the need to grow and develop. This can be internal or external.. Internal growth can be slow and uncertain because the company doesnt have past business experience on a particular field. outdoor(a) expansion leads to diversification and market capitalization is improved. Gro wth of a company in the industry tracts more shareholders to the company and therefore funds for financing business operations are adequate. This leads to market leading(p) and high volumes are sold bringing about high profit margin.Merging may be due to the surcharge of the management team of the bidder company. The management may want to associated with all players in the country that are do better. This will be a way for the management to market itself and therefore the same directors can be doctor upd at the next annual general meeting. The management might have been watching the firm to be acquired and may have an idea of corrections to be made in order to increase perfection.They may w ant to acquire a firm that is just about due to liquidity issues, restore its operations and hence cash flows. They therefore be associated with the recovery of the dieing company and hence improve their utilization opportunities with other companies. They may also look for promotions and b eing part of the recovery team may a good ground for such. They management may also want to part of the management of a market leader in the company and this calls for all necessary strategies possible including mergers and acquisitions(Schlossberg, 2007).Horizontal integration whereby a company starts producing colligate products leads to increased market share due to increased sales out of the high volumes of sales. This may result in very radical transactions, which might be risky. In business yield comes together with risk taking. Vertical integration in this case is considered most because its more risky but the gains might be more than the costs. Diversification into another line of production may be a motivating factor.The company may have identified another variety of related products, which might be profitable and may want to be part of that industry. Therefore the best way to go may be the merger in order to pump in capital into the other company, which is facing liquidit y issues, and hence have a major share of the profits. Horizontal integration is always considered best because it involves dealing with the same kind of business, which has a better track record (Schlossberg, 2007).In Australia the following steps are necessary in mergingResearch should be first done to determine possible candidate. This needs the help of experts in the research work so that all necessary data and info is available to the management of the acquiring firmThe pauperization to merge should be first understood and the angle to be interpreted determined. Synergy should be strong understood and illustrated.Evaluation should be done on the acquiring firm. The firms business strategy should be understood in order to determine the degree of compatibility and the other aspects of business mergers. This also helps in justifying the acquisition.Immediately after the merger, Profits go down first due to the expenses incurred in research and implementation costs. Diversificat ions are normally expensive and gains cant be realized immediately. Profits are normally derived at by Sales-cost of goods sold expenses. The cost of goods sold=opening stock + purchases-closing stock. High cost of goods immediately after the merger can be due to high opening stock, high purchases and low closing stock. This will therefore result in low profits.In the long run profits are supposed to increase due toEconomies of scale and scope, due to merging with supply and distribution channels, discounts will be presumption to the entity and this results to low operational costs. Large volume sales enable customers to get discounts and volume of sales is increased. This other unnecessary costs are avoided leading to maximization of profits.Diversification to another line of business this means exploring of virgin grounds and operation benefits are taken advantage of. This means that sources of gained are increased and the total volume of profits is increased.Increase in market encourage High market value is due to being a market leader and commands a greater share of the demand in the market. High volumes are sold and the sales figure is high. Sales are considered to be directly related to the profit volumes.The risk taken at first yields benefits Diversification may be risky therefore benefits may not be realized fast. Benefits can only after recovery and it will be to the enforceable future.Geographical advantages are realized. The merged entity need time to get utilise to the business environment and therefore gains take time to be realized (Bruner, 2007).Merging is better than internal expansion. Merging may be a little bit fast to pick up because acquired firms have lively resources and personnel. This reduces time spend in staff professional development and growth.A move company needs to merge as near bankruptcy physical exercise situation. This helps in maximizing the value of the company where such companies are considered to be damaged goods. Shareholders, Board of Directors and the managers leave for firms specializing in a workout that is salvaging the value that was assumed to be left in them.Liquidations cant be left behind. The use of highly leveraged transactions (HLT) expanded the profile of financially troubled companies (Schlossberg, 2007). Financially troubled companies are businesses that were leveraged and unable meet their debt service heart and soul but still separate acceptable or even optimal operating cash flows given their internal resources and market opportunities.PublicityA demerger is expected when competitors start taking advantage of slow growth and development and they may take advantage of opportunities created by merged entity. This is because the competitors have been having existing offices, management and resources supply. Diseconomies of scale and scope start occurring and therefore the operations may not be profitable and a demerger may be considered. The company may at times consider in ternal expansion to be worth while and may start investing in such hence the merger becomes irrelevant (Bruner, 2007).The expansion to another geographical areas may prove to be unprofitable and thus the firm may consider demerging and concentrating in its essential business operations. The external growth may start being costly and the acquiring company decides to sale its share of the acquired company. The primp of management may be at some cost to the company and the shareholders may decide to demerge. The diversification to another line of production may prove to be extremely costly to the company and a demerger may be asked for so that focus can be on the grassroots profit gaining activity/business.Both the acquirer and acquiree benefit. The acquiree is funded and its liquidity position is revised and merging is normally a workout for near bankruptcy situations (Gaughan, 2004). The acquirer is also in a position to enjoy economies of scale and production, advantage of geogra phical expansion, this is an external growth that cant be compared to the slow internal growth with uncertainties, management pride is improved, market share is improved and they move into a business that they have clear track record. ACCC is an self-sufficient berth of the Government of Australia established in 1995 with the amalgamation of the Australian Trade practices Commission and the Prices Surveillance authority to administer the trade practices Act 1974 (Cth)Its meant to protect Consumer rights, business rights and obligations, perform Industry regulation and price monitoring and prevent illegal anti Competitive behavior (Schencke, 2007).The more of the following criteria a troubled company meets the more marketable it will be to the acquiring companyIs it a manufacturing rather than a distribution operation. Acquiring a manufacturing company will be horizontal integration and will be more profitable to the entity (Robinson, Tranter, Loughran 2007). This kind of synergy r esults to taking advantages of economies of scale, diversifying into other lines of production, increased market value, expanding to another geographical location and this will be better than internal expansion. Merging with a distribution company will be a vertical forward integration and may be very risky with uncertainties due to lack of a clean track record.Fills a unique product niche rather than produces a commodity item.Has a well-known brand or trademark that is undamaged by its current situation.Sustains a strong defensible market share. A company with a strong market share means that its quite stable and will be profitable to merge with. This will also improve the substantial entitys image and then the share price improves in the stock market.Has a well-maintained machinery and equipment. These are tools of production and this indicates indefinite operation of the company into the future. Such a company is not risky to deal with and may result into huge future losses. Hen ce the idea of merging may not be necessary.Ernest & girlish (2006) pg20In conclusion, mergers and acquisitions should be considered in the companys research and development. It involves a lot of research that collects data and information in order to evaluate worth candidates for merging. The long-term objectives should be increasing the companys market share within the industry, making use of economies of scale available and being a market leader.Mergers resulting in long term losses should be avoided because this wont lead to growth and development of the company. Mergers also determine the structure of an industry because they lead to a decreased number of market players in the industry. This leads to high concentration and competition is reduced. Monopolies may be formed and this may not be healthy to the industry as a whole. Price control bodies need to be in place to control the assurance of the market by a particular holding company.ReferencesErnest & Young, Ernest & Young LLP. (2007). Back to Basic Techniques onMergers & Acquisitions (Pg 19-23). Wiley PublicationsGuy M. Robinson, Pal. J. Tranter, Robert Loughran. (2007). Economy parliamentary procedure &Environment. Oxford University PressHans Schencke. (2007). Accounting for Mergers & Acquisitions in Europe. IBFDMichael A. Hit, Jeffrey J. Harrison. R Duane. (2007). A Guide to creating value forStakeholders. Oxford University PressPatrick A. Gaughan. (2004). Merger, Acquisitions and Corporate Restructuring.Wiley PublicationsRobert F.Bruner. (2007). Applied Mergers and Acquisitions. Wiley PublicationsRobert S. Schlossberg. (2007). Understanding the fair Issues. American BarAssociation.