Appropriate process in making the merger a success
There is a necessary process which project manager should recommend the merger a victory. The first step involves project managers checking liquidity and financial health of the company (Gomes, Angwin, Weber & Yedidia Tarba, 2013, p.13). Before project manager enter into any form of transaction they should they should first determine if they have financial ability by performing a thorough financial health check most financial organization have now shifted their focus from profit and loss towards liquidity, which means project manager should first evaluate if they have the ability to carry out a transaction successfully (Weber, 2013). The second step involves the project manager making sure that people see the project. Before closing a deal, the project manager should ensure that they have a team with skills and knowledge to assess a transaction and complete an investment. The team should have the ability to solve challenges and problems which they encounter while integrating a transaction so that they can be able to establish a company which functions smoothly (Hrebiniak, 2013). In the third step of making a merger successful involves the definition of goals and success factors.
In this step, the project manager have to analyze their competitive position as well as future objectives and goals. This means the project manager have to understand what they are doing in business, what they want to achieve and what they value most (Galpin & Herndon, 2014). They have to determine if their goals are increasing the market share or if they need to acquire new products, processes and intellectual capital to expand their business. The fourth step involves considering merger and acquisition candidates. In this step, the project manager is already aware of what they want to achieve out of merger and acquisition, and it is, therefore, the right time for them to search for the right match (Cartwright & Cooper, 2014). However, there are some screening factors which should come into their head while finding the right people. The project manager should evaluate the organizational and operational challenges which need to be integrated. In the fifth step involves planning and executing due diligence. When it comes to evaluating a potential deal within a project, project managers have to do much more than just simple math and audit lite they have to test the strategic fit for the merger.
The project manager has to consider their goals for the merger and the drivers for the valuation. When project managers are aware of what they need to preserve, they can dictate what they need to test for the due diligence. In the sixth step, project managers have to create a transition team (Stahl et al., 2013, p.333). This is because significant transitions require strong leadership and it aims at savings and efficiencies. It is therefore vital that project managers should create transition teams which include line managers who are close to actions. In this step, project managers also have to involve leaders from all the sides of the merger, and they should their expectations high and work hard to achieve their goals. The last step of making a merger process successful is carefully planning and performing the integration (Rosemann & vom Brocke, 2015, p.105). When it is finally the time to merge the operations, procedures, and cultures of two companies, project managers should focus on revalidating all the plans they have developed since the project started. In this last step, project managers have to evaluate what is working and what is not working.
Rationale for merger
Some organizations pursue consolidation as an opportunity that rises while other companies make it an ongoing strategy which can be utilized to be able to grow their business. The rationale for merger involves creating synergy. Synergy is a combined action which occurs when two companies are merged. The primary objective of creating synergy in merger and acquisition is to improve efficiency and effectiveness in the form of revenue enhancement and cost saving. Obtaining diversification is another rationale for the merger (Salop, 2017, 1962). This enables companies to be able to diversify into other lines of business in which they can be able to understand and venture into other activity which can bring the company benefits. Some of the benefits associated with diversification includes fast growth of the business as you sell more products to the existing consumers. The third rationale for the merger is exploiting scale economies. In this case, the size of the organization matters and large companies have a lot of benefits regarding production if the manufacturing operations can be integrated. The company is also able to make a profit in marketing if it efficiently utilizes its distribution channels (Aagaard, Hansen & Rasmussen, 2015). The fourth rationale for the merger is entering a new market. An organization which lacks skills on how to develop new products and they do not have access to outlets which can lead them to various market segments can utilize takeovers because they are a quick and straightforward way of expanding their business. The merger should also aim at restoring growth impetus. Maturing organizations whose growth rate is slow may merge with a young company so that they can be able to get quick entrepreneurial ideas to achieve higher rates of growth. The next rationale for the merger is acquiring market power. Organizations should be able to obtain higher earning by ensuring that the organization is at a level which has less competition (Kristensen &Lund, 2015). Acquiring market power is very beneficial to a business make it makes it capable of driving competitors out of the business and eliminate competition from the market. The last rationale is purchasing a stock marketing listing. Organizations can achieve this by reversing takeovers in which unlisted firms acquire smaller listed firms, and private organizations get publicly listed in a short period. One of primary benefits of purchasing a stock market is that it gives the business an opportunity to grow its money because with time the stock market rises.
Means of payment in merger
Methods of cash with the merger are the key to the success of any merger and it the last step. Selection of the payment method evaluates and determines the financing methods which an organization can use (Auerbach, 2013). All the different ways of payment which are used in the merger have various impacts on the financial status of the organization and the capital structure. The method of payment which an organization selects to use can also affect the performance of merger and acquisition (Gorbenko & Malenko, 2013). Means of payment with merger means the resources and financial tools which purchasing companies can acquire. There is various mean of payment in the merger which is used by multiple companies. The first payment method of the merger is exchanging stock. It is most usual mean of payment to fund a merger or an acquisition. In case an organization has to amalgamate with another it should be assured the other firm has plenty of stock.
The buying company has to exchange its stoke for shares of the seller company (Tripathi & Lamba, 2015). Exchange of stock is a safe mean of payment for mergers because both companies share risks and uncertainties equally. This mode of payment benefits the buyer in case the stock is highly valued. Buyers receive a lot of stock from the vendor than when paying in cash. The second means of payment for mergers is debt acquisition. This happens in a case when a company finances a merger through the issue of fixed interest (Clemens & Gottlieb, 2017, p.1). The shareholders of the acquired companies prefer this type of payment because of the security of income which is accompanied by an choice of conversion of equity within a stated period. The acquiring company is also benefited because of accounts of lesser earnings per share as well as controlling authority of the existing shareholders (Moffett & Naserbakht, 2013, p.105).
Cash payment is an alternative payment alternative which can be used in a merger. Cash payments are clean and efficient as they do not need a lot of high level of management as compared to the exchange of stock. The cash value does not depend on the firm performance except in situations which involves multiple currencies. Cash payment is the most preferred method of payment for merger even though the price of the merger can rise to billions hiking the cost for many firms. Companies can also use the issuance of bonds to pay for the merger (Di Giuli, 2013, p.196). This is because corporate bonds are simple and a fast way of raising cash from the general public or the existing shareholders. The last payment method which can be used for mergers is through loans.
Mergers and acquisitions have been facing various challenges. Mergers create distress within an employment base for each company. Merger process amalgamates positions in the organizations which are already duplicated (Dikova & Sahib, 2013, p.77). This leads to the loss of experienced workers with skills and expertise in finance companies which led to poor leadership skills in the organization because the leaders who are selected lacks experience. Mergers can increase the amount of debt that is owed (Cartwright 7 Cooper, 2014). In case there is any debt which is owed by both companies, merger process can end up expanding the balance sheet debt of combined companies and it affects the ability of the merged companies to establish new credit lines making them unable to borrow additional capital in case they want to expand the business to new location or production of new good and services which meets the consumer’s needs. The third challenge which is faced with mergers is wrong decisions (Evens & Donders, 2016, p.674). This happens because in most cases only one person makes the decision which the merged companies have to follow. Mergers and acquisitions require many people from both companies so that they can be able to come up with concrete ideas to make decisions which make the business move forward to fit in the market place. Failure to this leads to wrong choices which can make the company incur a lot of financial losses.
Despite all the challenges which are associated with the merger, it has some benefits. Mergers add more value to the combined companies which single companies cannot have on their own (Malhotra & Gaur, 2014, p.191). Merger and acquisition process aims at reducing duplications so that business efficiency can be achieved. This results in an improved level of revenue because there are no costly redundancies that occur through the product chain. The second benefit of mergers and acquisition is that it opens up new markets for both companies (Gomes, Angwin, Weber & Yedidia Tarba, 2013, p.13). When a company merges with another company, it gains new market opportunities which it never had before. Customers may be encouraged to experiment with new products and services after the merger process is over. The last benefits Is that merger and acquisitions are cost effective means which can be used to fund for business expansion (Lohrke, Frownfelter-Lohrke & Ketchen Jr, 2016, p.7). This is because if a business has to upgrade by their own using their existing technologies the process can be very long and expensive, but when they merge with another company and combine their technologies and capital the upgrade period is short, and it is less costly.
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