Introductions and Recommendations on M&a DealsSection 1: Introductions and Recommendations on M&A DealsIntroductionBy definition, mergers refer to the action to combine two companies of similar sizes and to create a new company that integrate both companies’ finance and management. Meanwhile, acquisitions refer to the action of a larger company acquiring a smaller companies and no new company created. However most Medias have mixed the concept of mergers and acquisitions. Most cases today are acquisitions. There have been several business merger and acquisition waves since the last century. No matter how market perception changes, the ultimate benefit or loss is always born by the shareholders from the purchaser side. In this essay, I am going to discuss the key elements to be carefully considered in M&A deals, analysis on the winner in terms of the shareholders, and justify the proposition that both gain and loss exist.
Topic 1: Key elements to be considered in M&A dealsAccording to Bishop, M. (2013), about two-thirds of all mergers and acquisitions fail. There are different factors causing the corporate marriage to fail, and I reckon the followings are crucial in M&A deals.
Purchase Price (including APP) Versus Net Worth & SynergyFirst and foremost, success of a deal largely depends on the difference between net worth with synergy and the cost incurred. In order to better demonstrate acquirer’s cost, I think it is useful to apply the concept of Acquisition Purchase Premium (APP). As described in Topic 15 learner material, “APP represents deliberate overpayment in excess of the target firm’s market value which an acquirer must pay in order to secure control.” Apart from target firm’s net worth as valued, the purchase price paid by the acquirer also includes APP. The higher the APP, the less likely that achievable synergy can cover acquirer’s cost, and consequently the smaller the chance for a successful M&A deal.
Then what is synergy? Referring to Topic 16 learner material, synergy is either post-merger savings or efficiencies resulting from the combination. For example, if an OEM automobile manufacturer acquires an auto part manufacturer, the acquirer is likely to benefit from a lower cost of raw materials and processed goods than it used to pay for an outside auto part supplier. Such a post-merger material savings can be regarded as synergy. Another example can be the case in which an OEM automobile manufacturer acquires another OEM. The acquirer may be expert in conventional car production, while the target firm may be pioneer in electric vehicle manufacture. The combination of these two may create efficiency in both market expansion, product fusion and additional revenue earned by EV, reflecting a clear synergy after the deal. However, synergy valuation is quite subjective
In summary, the benefits of a post-merger synergization are as follows:
For OEMs
Efficiency
Batteries
Product fusion
Efficiency on raw materials, processed goods (like car parts and trucks)
Batteries generate increased sales compared to their raw materials, even over a 30-year period. This means that increased overall sales within OEMs can significantly improve the overall brand brand in this industry.
For EV makers, synergy makes them highly competitive and even more valuable than the usual synergistic products they are competing for. For OEMs, it is as if they make everything but the product their own so they can use it as much as possible. Thus, synergies in all markets, particularly in this type of business, are much more competitive and desirable. This means that competitive forces are a strong argument for synergy:
Benefits of synergies:
It allows for significant synergistic business opportunities. For example, the synergistic, cost-effective competitive advantages of selling cars to different car manufacturers can lead to both increased sales and greater overall sales in EV markets. Thus, if one or more of these markets is more market-competitive, one would benefit from greater customer demand to sell EVs than if all markets were so competitive. Also, such synergies tend to increase the value of the overall EV market, which means that the product is sold for lower price in all markets. This is especially beneficial for the EV enthusiast and automotive business, as demand for the product is typically greater in EV markets.
However, a synergized business environment with low levels of service, high costs of labor, zero cost of transportation or very high cost of manufacturing can create a huge disadvantage for its members. On the other hand, an agreement between two or more of these members can result in a synergistic product offering for which one or more members can benefit. For example, the first-round synergistic deal for ASE’s Chevrolet Camaro offers a much-needed service increase compared to the deal in its previous deal with Toyota. Therefore, these synergies tend to encourage EV owners and automakers to increase their service and manufacturing costs.
For EV buyers
Efficiency on raw materials, processed goods, trucks, e-cigs and other products
Efficiency on electric vehicles and other electric vehicles
Economic growth
Business opportunities
The synergistic business environment that exists in the EV economy means that a product, service or business that benefits from being linked to an entire segment (such as a automotive company) will be significantly more competitive over a 30-year period. Likewise, a synergistic solution can increase the value of the automotive industry and allow users to build their vehicles in more environmentally efficient ways. Hence, the potential synergistic opportunities of EVs can be tremendous for both individual companies and for the EV enthusiast.
In addition to creating competitive synergies in both market segments, synergized product synergies can even give you the opportunity to develop a business model that leads one company to gain revenue and other people to continue selling their cars as market share.
Summary Analysis
Overall synergy offers the opportunity to create value for the users of a product and a business, by helping consumers to build value for their businesses and by building one or more business models that enhance that value.
If you are applying for synergies outside the United States, it is wise to see if there are any laws related to the potential of synergies outside the