Category: Acquisition

Whole Foods, is a natural and organic food retailer, which was started its operations in 1980, in Austin, Texas. It is now the largest natural and organic foods retailer in the world, and has stores in the United Kingdom and throughout North America. The company has been involved with a lot of mergers and acquisitions since it started its operations. In fact, much of the company’s growth has been achieved through the acquisitions and mergers.

The company developed this strategy in order to expand its market, since the companies they have partnered with, are spread in many parts of the world. Initially, the company was called SafeWay, and it was founded by John Mackey and Rene Lawson Hardy. After running for about 2 years, SaferWay merged with Clarksville Natural Grocery, which resulted to the establishment of the Whole Foods Market in 1980.

Since then, the company has been extensively employing this strategy, and it has formed mergers with companies such as Wild Oats© Markets, Fresh & Wild, Select Fish, Harry’s Farmers Market, Food for Thought, Nature’s Heartland, WholePeople.com, Allegro Coffee, Merchant of Vino, Amrion, Bread of Life, Fresh Fields, Mrs. Gooch’s, Bread & Circus, and Wellspring Grocery. This paper will focus on the market, industry and the marketing strategies employed by Whole Foods.

Discussion

This retail company operates in the food industry. This is an industry which mostly depends on agriculture. In other words, agriculture is the key source of products in the industry which Whole Foods operates in; hence changes in climatic conditions directly affect the industry.

The type of market structure in this industry is a rapid growth structure. This is because the use of organic food products is on the increase in the modern world, as people are increasingly being affected by foods that contain chemicals. Due to this, many people want natural foods and this is why the market for the industry in which this firm operates in, is experiencing rapid growth (Kotler & Keller, 2009).

The change agents in this industry include societal/demographic trends and technological trends. When demographic trends change, the food industry is affected because changes in perception and way of life are directly related to food consumption. Technological changes also affect the food industry because they affect production, quality and distribution of food products, hence directly affecting the food industry market.

Threat of new competition

There are many firms selling organic food products such as Wal-Mart, Trader Joe’s and Safeway among others. Therefore, Whole Foods faces a threat of new competition as these competitors are constantly employing modern technology to outdo each other in the foods market. Due to the increasing demand for natural and organic foods, the foods market is growing rapidly and this may facilitate entry of more new firms into the industry, which will further increase the competition for Whole Foods (Joshi, 2005).

Threat of substitute products or services

There are many substitute products for Tartar sauce and Tropical fruit blend among others. The natural environment offers some substitutes to these products and so, an increase in these substitutes will definitely affect the market of Whole Foods. Changes in demographic trends may also offer more substitutes to the products sold by Whole Foods, hence affecting the firm’s market (Mercer, 1996).

Bargaining power of customers (buyers)

Many companies appreciate the bargaining power of customers by reducing prices to favor the customers. Different customers from different geographic locations have varying bargaining powers, and this affects the profits of the companies. Change in social trends; affect the bargaining power of customers for the organic food products sold by Whole Foods and other organic food retailers (Paliwoda & Ryans, 2008).

Bargaining power of suppliers

Changes in technology may affect the bargaining power of suppliers in this industry. If some suppliers of raw materials advance in technology more than others, many firms in the industry will start working with the advanced suppliers.

This increase in demand with limited supply, will increase the supplier’s bargaining power, hence leading to an increase in the prices of the raw materials. This will in turn lead to an increase in the final products by the firm, which will subsequently affect the market structure, situation and competitiveness in the industry (Hill & Jones, 2009).

Intensity of competitive rivalry

Changes in technology affect the intensity of competitive rivalry. If a company in the food industry employs advanced technology in marketing its products, it increases competition in the food industry, as more firms in the industry will be trying to counter this advancement. If the intensity of competitive rivalry increases, prices reduce and quality improves. This in turn makes the market more segmented (Ahlstrom & Bruton, 2009).

The firm employs a differentiation strategy in marketing its products. This is because it tries to make each product unique, which differentiates it from products of other retailers such as Wal-Mart. Changes in technology affect product differentiation in that; advanced technologies are used to make products more differentiated and unique, which in turn helps in marketing the products (Henry, 2008).

Demographic changes also affect product differentiation, in that people from different areas and cultural backgrounds; have their own tastes and preferences, and firms try to differentiate products based on the target market. Differentiation of Whole Foods products is mostly focused on ingredients and appearance, which is a good differentiation strategy, because these are the things which customers for food products consider first.

With this strategy, it can survive in any new environment because universally, customers for food products first consider the ingredients and the appearance/branding. Since the competitors of Whole Foods such as Wal-Mart are large, the company tries to lower the prices of its products, so as to effectively survive in the highly competitive environment (Burgers, 2008).

References

Ahlstrom, D., & Bruton, G. D. (2009). International management: strategy and culture in the emerging world. London: Cengage Learning.

Burgers, W. (2008). Marketing revealed. London: Palgrave Macmillan.

Henry, A. (2008). Understanding strategic management. Oxford: Oxford University Press.

Hill, C., & Jones, G. (2009). Strategic management theory: an integrated approach. London: Cengage Learning.

Joshi, R. M. (2005). International marketing. Oxford: Oxford University Press.

Kotler, P., & Keller, K. (2009). A framework for marketing management. New Jersey: Pearson Prentice.

Mercer, D. (1996). Marketing. New York: Wiley-Blackwell.

Paliwoda, S. J., & Ryans, J. K. (2008). Back to first principles. International Marketing, 25.

Numico has grown from humble beginnings to become of one of the largest companies that manufactures nutritional products. Acquisition is one of the major strategies of the company. Throughout, the history of the company, it has acquired companies in various locations.

This has enabled the company to venture into foreign markets. This company has helped in sustaining its growth. Acquisitions enabled the company to control interests in more than 100 countries. This enabled the company’s products to reach a large number of people.

Numico uses a medical platform marketing. This implies that the company uses its experience in manufacturing products that have a medical backing. The company has laboratories in several countries. These laboratories use scientific data to develop new products.

This enables the company to develop products for vulnerable people. Research enabled the company to develop products that focused on the link between nutrition, diseases, and health. This enabled the company to improve its competitiveness.

The U.S. is one of the most lucrative markets. Numico acquired General Nutrition Companies (GNC) to improve its competitiveness. GNC was the largest producer and marketer of nutritional supplements. The company exported its products to more than 25 countries.

Therefore, acquisition of the company enabled it to acquire the customers of the company. This enabled Numico to improve its competitiveness globally. GNC had a strong brand name. This brand name and Numico’s scientific knowledge would help in improving the competitiveness of the new entity.

Acquisitions of new companies made Numico venture into industries that were different from its traditional areas of operation. Enrich International specialized in the sale of nutritional supplements and personal care products. On the other hand, Rexall Sundown Inc. specialized in the sale of vitamins, nutritional supplements, and consumer health products. The demand for nutritional supplements was income elastic.

The demand was dependent on the income of customers. Reduced income reduced the demand of the nutritional supplements. Nutritional supplements were not vital products. This necessitated the company to device strategies that would enable it to market the nutritional supplements effectively.

Acquisition of new companies exposed the companies to several risks. Numico specialized in the production and marketing of nutritional products that targeted infants, patients and other people who had special nutritional needs. It was vital for the company’s products to meet the nutritional needs of the target market. Failure to meet the nutritional needs would reduce its competitiveness.

Numico acquired companies in different geographical locations. This exposed the companies to risks due to the volatility of the exchange rate. Volatility of the exchange rate may have a negative or positive impact on the company. Drop in the rate of the U.S. dollar versus the euro reduced the profitability of Rexall Sundown and GNC.

This is despite the fact that these companies has improved performance. Reduced profitability of these companies forced Numico to sell the companies and exit from the nutritional supplements market.

Traditionally, Numico specialized in the sale of products that targeted infants and other people who had special nutritional needs. However, the acquisition of new companies forced the company to start selling nutritional supplements.

These products were more sensitive to the prevailing economic situations. Fluctuation in the demand of these products exposed the company to several risks. However, customers’ increased consciousness of their health increased the demand of these products.

Acquisition of new companies necessitated Numico to specialize in the production and sale of infant nutrition products, healthcare products, and supplements. Historically, Numico was a high growth and high profit margin company. However, Rexall Sundown was a low growth low margin company. In addition, GNC was a high margin low growth business.

These companies did not fit Numico’s strategy of high growth high margin. This necessitated Numico to sell the companies.

Numico acquired several companies during its history. In 1999, the company acquired General Nutrition Companies. In 2000, Numico acquired Enrich International and Rexall Sundown. However, in 2003, Numico sold Rexall Sundown and GNC. The sale of these companies was due to the fact that the companies did not fit Numico’s strategy.

The companies did not meet Numico’s profit expectations. Nutritional supplement market was a low growth market. In addition, the market was income elastic. However, soon after the sale of the companies they became profitable. The sale of the companies was a right decision.

Failure to sell the companies would have necessitated Numico to change its strategy. This may have had a negative effect on the company. However, sale of the companies made Numico lose the money it had invested in the companies. In addition, Numico lost the competitive edge it had due to the acquisition of the companies.

Sale of the companies enabled the company to concentrate on its traditional market of infant nutrition and clinical nutrition products. The company had vast experience in producing and marketing these products. This enabled it to have a competitive edge in the market.

Introduction: The Tata Group and Its Story

The Tata Company, whose headquarters are based in India, deals with the steel processing and production. According to the existing records, the company started its growth after purchasing the shares for Corus, an Anglo-Dutch steel company (Freeman, Gopalan, & Bailey, 2009, p. 2).

The Current Strategy in the Global Context: Taking a New Course

At present, two major tendencies can be observed in Tata, i.e., the tendency for growth and acquisition.

Concerning the benefits: stretching worldwide

There is no doubt that the acquisition through growth strategy opens a whole pool of new opportunities for Tata, one of which is joining the world market. To start with, the Tata Group’s authority is going to grow increasingly with every new acquisition (Trivedi, 2012).

Another obvious advantage that the chosen strategy involves being able to analyze the chosen market closer and learn more about what customers demand.

After processing the data concerning customers’ demands obtained from different affiliates of the Tata Group, one will be able to provide the products that will satisfy the needs of the majority of the target population (Vora, 2013).

The last, but definitely not the least, the power of such brands as Jaguar, whose shares Tata Group has recently bought, will also add to the profitability of the company.

It is worth mentioning, though, that Tata should As Bajaj explains, “Tata Motors appears to have succeeded in large part because it did not seek to run Jaguar Land Rover from Tata headquarters here.

Instead, it has left day-to-day management in the hands of executives in England” (Bajaj, 2012).

Assessing the risks: financial policy and the related issues

Among the most obvious obstacles that the company is likely to face in the course of adapting towards the specifics of the world market and, more importantly, merging with the companies that exist in differently cultural settings.

The PEST evaluation will be required to represent the issue more graphically:

Judging by the above-mentioned evaluation of Tata’s greatest risks concerning the growth through acquisition plan, the Tata Group’s greatest risk is signing the wrong company up for partnership. To avoid this risk, the company will have to develop a flexible system of risk assessment.

Conclusion: There Is Yet Much to Strive for

Judging by the current situation, there is still a number of steps to be made for the Tata in order to achieve worldwide success.

However, to the company’s credit, it has enough potential to achieve success; and, which is even more important, Tata is worth this success. Having much to offer to its customers, the company definitely has the potential for further development.

Reference List

Bajaj, 2012. Tata Motors Finds Success in Jaguar Land Rover. Web.

Freeman, K, Gopalan, S, & Bailey, J 2009, ‘Achieving global growth through acquisition: Tata’s takeover of Corus,’ Journal of Case Research in Business and Economics, vol. 1 no. 1, pp. 1–17.

Trivedi, A 2012,’Ratan Tata, the man who brought Tata to the world,’ India Ink, n.p. Web.

Uemura, A & Shirai, M 2003, ‘New Technologies for Steel Manufacturing Based upon Plant Engineering,’ NKK Technical Review no. 88, pp. 37–45.

Vora, S 2013, ‘India’s Tata Group maps U.S. expansion,’ India Ink, n.p. Web.

According to Dorata (2012), the positive and negative impacts of mergers and acquisitions largely depend on the performance of the firms that engage in the consolidation process. In other words, if the respective firms are weak in terms of market performance, it is highly likely that consolidation may find it cumbersome to excel. Successful takeovers are mainly witnessed among firms that have already demonstrated positive growth index in the marketplace.

The study carried out in the research article by Dorata (2012) investigated a number of growth parameters that may either impede or promote mergers and acquisitions. Policy-held companies from the US were evaluated in terms of effects of mergers and acquisitions after the companies had been fully consolidated. The main purpose of the study was to assess the significance of stakeholders in regards to the impacts of mergers and acquisitions. The research findings indicated that the strengths and weaknesses of corporate mergers are remarkably influenced by stakeholders during mergers and acquisitions.

In yet another independent study by Shim (2011), the United States’ property-liability insurance organizations were investigated in terms of the effects and relationships between mergers and acquisitions. The fifteen-year study that ran from 1989 to 2004 concluded that the performance of mergers is largely affected by earnings volatility, Z-score as well as return on equity and assets. Earnings volatility is reduced by the financial performance of the acquirer. Frictional expenses are also expected to escalate after the process of a merger or acquisition. In other terms, post-merger integration has proven to be a costly affair among most entrepreneurs in America.

On the other hand, Bouraoui and Li (2014) are emphatic that capital structures are adjusted after mergers and acquisitions. This form of adjustment might interfere with the overall performance and profitability of parent companies. The study was carried out among 850 US companies. The findings indicated that negative performance was recorded among the firms surveyed in the empirical study. The latter was mainly occasioned by changes in leverage. In addition, the post-merger performance of the acquirer was found to improve owing to financial flexibility.

From the above findings, it is clearly evident that parent firms hardly remain the same after mergers and acquisitions. However, the aspect of performance among American firms that have been consolidated should be investigated further. Dorata (2012) emphasizes that the individual financial performance of the firms being acquired or merged determines the overall impact of the consolidation process.

Nonetheless, management systems and leadership structures of consolidated firms are often changed in order to conform to the new business outfit. Hence, the issue of post-merger/acquisition performance may not be uniformly applicable across the board. Most of the American firms that have been consolidated in the past have constituted new management teams in order to pursue new business agenda. In spite of the fact that capital structures are modified after consolidation of companies, a number of American firms still have the broad opportunity to leverage on the prevailing market dynamics. For instance, capital structures might remain almost the same if the acquirer or merging companies opt to raise separate funds and assets to run the new business platform.

On a final note, it is interesting to observe that mergers and acquisitions often pose both negative and positive effects to the firms being consolidated. Most of the successful American mergers and acquisitions mainly boast of strategic management and adequate capital inflow after the consolidation process.

References

Bouraoui, T., & Li, T. (2014). The impact of adjustment in capital structure in mergers & acquisitions on us acquirers’ business performance. Journal of Applied Business Research, 30(1), 27. Web.

Dorata, N. T. (2012). Determinants of the strengths and weaknesses of acquiring firms in mergers and acquisitions: A stakeholder perspective. International Journal of Management, 29(2), 578-590. Web.

Shim, J. (2011). Mergers & acquisitions, diversification and performance in the U.S. property-liability insurance industry. Journal of Financial Services Research, 39(3), 119-144. Web.

Introduction

In a perfectly competitive market, companies will always engage in activities that would be aimed at retaining their relevance and maintaining their market shares (Samuelson & Marks, 2011). In the modern economy, companies adopt managerial methods, such as mergers and acquisitions, to establish dominance in a given industry. This paper seeks to analyze mergers in the automotive industries with special attention to the factors that led to the mergers and the economic benefits that resulted from them.

Summary

Mergers and acquisitions refer to managerial efforts made by individual companies to consolidate a given industry in which they operate. Mergers and acquisition agreements are always achieved through the concentration of the resources of many small companies into a few larger companies, often with better economic advantages than the smaller companies (Donnelly, Morris & Donnelly, 2005).

The two concepts do not appear to have clear differences, especially if looked in terms of their ultimate economic outcomes (Samuelson & Marks, 2011). Both “mergers and acquisitions ultimately lead to an increase in the market share of the resultant association, with an increase in economies of scale and better services” (Samuelson & Marks, 2011, p. 45). The two concepts are, however, different in fundamental ways.

Mergers refers to “legal consolidation of two or more companies into a single entity, whereas acquisition is considered to have occurred when one company, usually the bigger one, takes over another one and establishes itself as the new owner” (Samuelson & Marks, 2011, p. 48). Unlike in mergers, acquired companies exist as independent legal entities controlled by the acquirer. Either arrangement has the same ultimate goal, i.e., to consolidate the economic and financial resources of smaller companies with a view to attaining a competitive advantage in the market (Donnelly et al., 2005).

Automotive Mergers and Acquisition

Mergers and acquisitions have contributed immensely to shaping the market structure of the automotive industry. In fact, mergers in the “industry ware largely seen as a means of increasing market shares and for improving the market reach for the products from the merging companies” (Donnelly et al., 2005, p. 435). The other reason that forced automotive companies to merger was to attain large economies of scale, which could allow them to outdo their rivals.

In the current market structure, the automotive firms cannot experience massive scales of mergers like those witnessed in the media and other industries, such as the healthcare sector. The trend is mainly because of the fact that the majority of the major deals in the automotive industry was achieved in the early 1990s and the beginning of the new century, reducing the future scope for further consolidations.

It is important to note that firms in the automobile sector are merging so that they can achieve excellent growth rates. Besides the corporate level alliance seen in the early 1990s, companies have also devised modern ways of achieving functional collaborations. Most automotive alliances have devised better ways to share technology and other platforms in an effective way in order to keep in pace with one another in a rapidly changing automotive industry. This new trend in the automotive industry eliminates the need for companies to incur the cost and spend time in doing research on new products

Renault-Nissan Automotive merger

The alliance between Renault Company and Nissan was signed at the beginning of the new millennium. In the deal, Nissan acquired part of Renault’s shares and vice-versa. Therefore, the two companies ended up buying the shares of one another.

The management teams of the two firms recognized the need to merge so that they could gain a competitive advantage in the market. However, it was agreed that the two business establishments could retain their brands in the market, but share resources. As a result of the merger, Renault supported Nissan’s marketing efforts in the European and South American regions as Nissan consolidates a market base in the North American and Asian regions (Segrestin, 2005). The Middle East and African regions were to be shared between the two companies.

The merger was very important for the reason that it helped them to improve their products and processes involved in procurement and marketing. From an economic point of view, the merging of the two companies was more likely to bring benefits than troubles to the alliance. First, the merger would result in massive cost reduction, increased market share, and market penetration, among others. As a result of the strategic approach, Renault Company was set to benefit from the up-to-date technological know-how, a wider network, wider market, and access to advanced managerial networks (Segrestin, 2005).

The impact of the merger has been nothing short of success for both firms. It is evident that the two firms recorded significant financial gains in 2002, which could be attributed to the success of the strategic management approach. Furthermore, it is important to note that the two business establishments have achieved significant cost savings due to utilization of a more efficient supplier base. Common platforms have also been formulated to reduce the cost and time taken to introduce new products. This would mean that the companies conduct joint research in relation to the market demand, and come up with designs based on the findings (Chanaron, 2007).

In their 2005 research paper, Donnelly and colleagues (2005) reported that a careful pre-merger approaches had been made by the two companies, and that Nissan had no alternative, but to consider the Renault as a rescuer. Their study emphasizes on the role played by the strong leadership of both companies and the necessity of speedy implementation of post-merger strategies. They highlight that decisions were made swiftly and the short-term goals set by the merger were achieved as a demonstration of their commitment to taking over the automotive industry by surprise.

Even though the merger was formed after a disappointing attempt by the individual companies to forge other alliances, the leaders of the business establishments realized that the automotive industry was experiencing strong competition and, therefore, the only way to survive was to forge a focused merger with clear goals and objectives (Chanaron, 2007). What resulted was a testimony to the fact that the merger was formed based on principles and desires to dominate a market that was increasingly becoming competitive.

Conclusion

In conclusion, mergers and acquisitions are strategic management tools that afre used by companies, especially those operating in highly competitive industries, to consolidate their resources and face the market with a huge competitive advantage over the other competing firms. The merger in the automotive industry is an example of such arrangement, which benefit the merging companies by reducing their costs of operations and increasing their market share.

References

Chanaron, J. (2007). Globalization: How Strategic alliances bring production and market advantages. The Sase of Renault/ Nisassan. HAL: Archives Ouvertes, 2(3), 65-76.

Donnelly, T., Morris, D., & Donnelly, T. (2005). Renault-Nissan: a marriage of necessity?. European Business Review, 17(5), 428-440.

Samuelson, W. F., & Marks, S. G. (2011). Managerial economics (7th ed.). Hoboken, NJ: John Wiley & Sons.

Segrestin, B. (2005). Partnering to explore: The Renault–Nissan Alliance as a forerunner of new cooperative patterns. Research policy, 34(5), 657-672.

Introduction

Studies define acquisition as an instance when a firm takes control of the liabilities and assets of another firm. The identity of the acquiring firm remains while that of the organization being acquired is lost. A merger, on the other hand, is a voluntary joining of two companies in almost equal terms into a new single legal enterprise (Siegel and Simon 21). The consolidations come with several benefits that this paper seeks to explore.

The benefits of business consolidations

Business consolidations are characterized by constant growth in revenue. Besides, firms that merge have a higher possibility of enlarging their market share, which in effect, contributes to the growth in sales. The firm may acquire better technologies and new skills, which also contributes to increased productivity (Stunda 4). Another benefit associated with industrial mergers in America is the reduction in labor and production costs. From most straight consolidations, economies of scale are created.

A vertical merger, on the other hand, provides opportunities for cost reduction resulting from the closer coordination of distribution and production. Cases of companies having resources that complement each other also tend to help in getting economies of scale.

In fact, it is normal for the new consolidated company to lay off less productive workers through downsizing and retain productive workers. The strategy will ensure that the remaining employees are those who are highly productive and the costs incurred in paying the laid off workers is avoided (Stunda 5).

The consolidations are also associated with other benefits including tax gains. The benefits arise due to the unexploited tax losses, unexploited debt capacities, appraisal of assets that depreciate, and the availability of surplus funds (Stunda 2).

The acquiring firm has the possibility of increasing its returns on investments through efficient utilization of the newly acquired assets including the working capital. The case becomes more applicable where the existence of the targeted firm depicts redundant assets that can be divested (McGuckin and Nguyen 740).

Reduced cost of debt is another ground why businesses combine their assets. In most cases, this will accrue from the reduction in how variable the cash flows will be as the corporations continue to operate. The instances that would have existed before a firm defaulting on its debts will be reduced or completely non-existent. In case such a scenario occurs, it will lead to safer debts and a reduction in the borrowing costs (Stunda 3).

The shortcomings of mergers and acquisitions

Even though the consolidations in the American industry have proved beneficial, there are also a few shortcomings. The first major shortcoming occurs in the existence of conflicting resources and organizational cultures and practices between the two companies that are consolidated.

These may lead to rifts within the newly consolidated organization. In fact, the differences in the cultures, processes, and systems may make the company lose part of its brand and highly estimated synergies. In turn, inadequate understanding of the targeted business may lead to an awful decline in the worth of the shareholders and the firm’s stock price (Gersdorff and Bacon 6).

Conclusion

Even though consolidations have both benefits and shortcomings, the benefits outweigh the shortcomings. Firms should, therefore, embrace consolidation but ensure that they find solutions to any unanticipated complication resulting from the mergers to ensure their success. Consolidations provide a bright future for firms in various American industries. Thus, the relaxation of the anti-trust law is apparently good for the renowned firms, but bad for the infant corporations.

Works Cited

Gersdorff, Nick, and Frank Bacon. “U.S. Mergers and Acquisitions: A Test of Market Efficiency”, Journal of Finance and Accountancy, 2013: 1-8. Print.

McGuckin, Robert and and Sang Nguyen. “The Impact of Ownership Changes: A View from Labor Markets”, International Journal of Industrial Organization, 19.5 (2001): 739-762. Print.

Siegel, Donald and Kent Simon. “Assessing the Effects of Mergers and Acquisitions on Firm Performance, Plant Productivity, and Workers: New Evidence from Matched Employer-Employee Data”, Strategic Management Journal, 2009: 1-30. Print.

Stunda, Ronald. “The Impact of Mergers and Acquisitions on Acquiring Firms in the U.S.”, Journal of Accounting and Taxation, 6.2 (2014). Print.

Surveys have shown that most acquisitions in business do not succeed. One reason for the failure of acquisitions is inconsistent business logic (Pearson Education 2012). Acquisitions fail because most companies fail to establish an acquisition strategy from solid foundations and as a result, the purchase puts a considerable strain on the acquirer’s assets (Connell 2008). Acquisitions fail due to wrong strategies; most acquiring companies lack a clear strategy on which value the acquisition will add to the business. Most acquisitions fail because of opportunism. Most acquirers buy other businesses merely because they are on offer (Cleverley, Song, & Cleverley 2011). In view of this, most acquirers rush to acquire other businesses and fail to consider the alternatives. For instance, the carmaker Toyota got into the luxury auto market profitably through Lexus (Stadler 2011). On the other hand, Ford Company paid a percentage for Jaguar, but afterwards faced excessive assimilation expenses and found that its price per vehicle was much higher than that of Lexus (Kapferer & Bastien 2009).

Inconsistent perceptive of the new business is the other reason acquisitions fail. Most companies misjudge the market by failure to devote the needed time and capital to make sure that the preferred target for the acquisition will produce the most wanted returns. Most businesses often misjudge the influence of new knowledge and additional market changes in the interim but undervalue it in the long-term (Ireland, Hoskisson, & Hitt 2008). Failure to appreciate the business model leads to acquisitions failures. In view of this, the acquirer should make an all-inclusive evaluation of how the target will be incorporated into the new business, and where the process and business improvement returns are to be realized (Kaplan 2000). Other problematic areas that lead to failure of acquisitions include overvalued achievable synergies and problematic areas unidentified in due attentiveness (DePamphilis 2011).

Inconsistent deal managing constitutes the other cause of failure of acquisitions. When acquiring other business, a company should not pay too much for the offer. Many economic experts ascertain that a business is worth what the acquirer is willing to pay. A poor negotiation strategy leads to failure of the acquisition. Many acquiring companies lack a comprehensible negotiation plan that echoes the status of the deal. A poor negotiation plan can amount to provisos that one side of the acquisition considers unreasonable (Thompson & Martin 2010). Lack of an advance integration strategy leads to acquisition failure. Before an acquisition takes place, the acquiring company must have a strategy in place as part of the valuation process, to facilitate in taking rapid action. For instance, BMW purchased Rover in a rush, stealing the business deal at the final minute from a contender. BMW had no comprehensible assimilation strategy at the time, thus; it was unable to run the business effectively before getting rid of the Rover in 2000 at an anticipated shortfall of 4.1 billion Euros (Grubb & Lamb 2001).

Other causes of acquisition failures encompass inconsistent incorporation management. This concept entails aspects like poor communication. Failure to plan business communication, in terms of what is to be said, and the levels of communication lead to acquisition failure. Poor communication in acquisitions leads to misinterpretation and spread of rumours that foil acquisitions deals. Other causes include poor leadership, incorrect steps in implementing changes and misjudging the scales of the task (Krug & Krug 2009).

Defective business development constitutes the ultimate cause of acquisition failure. Most businesses fail to establish control to realize the paybacks of the acquisition. In view of this, many businesses after the acquisition find that the changes they hoped for were out of place, cultural diversities were not addressed, and clients and the individual business was overlooked during the integration (Stahl & Mendenhall 2005).

References List

Cleverley, W, Song, P & Cleverley, J 2011, Essentials of Health Care Finance, Jones & Bartlett Learning, Sudbury Mass.

Connell, R 2008, Why Companies Do Not Pursue Attractive Mergers and Acquisitions, Cambria Press, New York.

DePamphilis, D 2011, Mergers, Acquisitions, and Other Restructuring Activities: an Integrated Approach to Process, Tools, Cases, and Solutions, Elsevier Science, Burlington.

Grubb, T & Lamb, R 2001, Capitalize on Merger Chaos: Six Ways to Profit from Your Competitors’ Consolidation and Your Own, Simon and Schuster, New York.

Ireland, R, Hoskisson, R & Hitt, M 2008, Understanding Business Strategy: Concepts and Cases, South-Western Cengage Learning Mason, OH.

Kapferer, J & Bastien, V 2009, The luxury strategy: break the rules of marketing to build luxury brands, Kogan Page, cop, London; Philadelphia.

Kaplan, S 2000, Mergers and Productivity, Univ. of Chicago Press, Chicago.

Krug, J & Krug, K 2009, Mergers and acquisitions: turmoil in top management teams, Business Expert Press, New York.

Pearson Education 2012, Why Acquisitions Fail-the 20 Key Reasons, Web.

Stadler, C 2011, Enduring Success: What We Can Learn from the History of Outstanding Corporations, Stanford Business Books, Stanford, California.

Stahl, G & Mendenhall, E 2005, Mergers and Acquisitions: Managing Culture and Human Resources, Stanford Business Books, Stanford, California.

Thompson, J & Martin, F 2010, Strategic management: awareness & change, South-Western Cengage Learning, Andover.

Vertical integration strategy: Usha Martin Company

Vertical integration involves the amalgamation of the production chain to accommodate the different products that the company deals in line with the market-specific demands. Usha Martin Company boasts of a strong backward vertical integration in its industrial organization.

From a single location, the company controls it’s designing, cutting, manufacturing, distribution, and marketing process for its steel wire pipe products. The product segments such as raw material acquisition, power plant operation, and coal mining, actual production, and distribution are segmented and disfranchised within a systematic control system that monitors production progress (Bloomberg, par. 7).

Reflectively, the backward vertical integration strategy has shielded the company from market swings which create fluctuations in the supply chain, in terms of input availability and price. As opined by the chairman of Usha Martin Company, the vertical integration strategy has enabled the company to save more than one billion Indian rupees over the last five years. Besides, the company has been in a position to have full control of the quality of inputs used in manufacturing the steel wire pipes.

Since the company operates and fully owns its sub production branches, instead of franchising any production or distribution channels, it has been able to benefit from the aspect of cost competitiveness in production and final price of the products (Worthen, Tuna, and Scheck, par. 8).

The backward vertical integration process has allowed the Usha Martin Company to produce, design, sell, and distribute its products globally within a short period. This is possible due to the internalization of direct and complete control of the distribution and production process for its steel wire pipe brands. The vertical integration process at Usha Martin includes the aspect of cost, dependability, speed, quality, and flexibility in the production cycle (Bloomberg, par. 4).

Acquisition or Merger: Rio Tinto Group

Rio Tinto Group has used an acquisition strategy to expand the product line and its market. The group is the fourth largest mining company in the world. It is listed in both London Stock Exchange and Australian Securities Exchange. Profit for the year 2013 amounted to $15,184 million while the total assets amounted to $112,402 million. The main business of the group is processing minerals such as copper, coal, aluminum, and borax, among others.

Since its formation, the company had concentrated on the production of copper. The business thrived until the First World War. World War affected the relationship between the US and Europe. Therefore, the profitability of the company went down. The management had to come up with strategies of increasing the profitability of the group. One strategy adopted was acquisition (Hoyle, par. 6).

In 1970, the group made its first acquisition, which was the Rhodesian copper mines. This acquisition enabled the company to prosper. After the acquisition of Rhodesian copper mines, the group acquired U.S Borax in 1988. Other acquisitions included Kennecott Utah Copper, BP Australian Coal, NSW operations of Coal & Allied Industries (which produces coal), Nerco, Northern Limited, and Cordero Mining Company. The latest largest acquisition was Alcan Incorporation, which was in the year 2009.

This acquisition amounted to $38.1 billion. Incorporation of Alcan, a company located in Australia. It specialized in the production of aluminum. Currently, the group has over 35 subsidiaries located across the world. Also, more takeovers, acquisitions, and merger negotiations are ongoing. Through the acquisition, the company has been able to diversify its products (Hoyle, par. 4).

Works Cited

Bloomberg. Usha Martin: News and Press Releases. 2014. Web.

Hoyle, Rhiannon. Boasteel, Aurizon Bid for Australia’s Aquila Resources. 2014. Web.

Worthen, Ben, Cari Tuna, and Justin Scheck. Companies More Prone to Go Vertical. 2009. Web.

Two Potential Targets

The company in question, Caracal Light Ammunition (CLA), faces two serious issues that are associated with shipping and tool manufacturing. The company produces a wide range of small arms ammunition (About us, 2014). According to the survey results, that the company buys raw materials from distant suppliers. The materials often need additional precautions and conditions for shipment, which results in increased costs. The survey implemented also shows that some shipping companies refuse to deliver such freights, which forces the organization to look for other partners, which is associated with the investment of additional time and funds.

It is possible to note that the company heavily relies on organizations providing shipment services. Therefore, it is important to consider the acquisition of a shipment company that would satisfy the needs of the organization. This will decrease the costs of logistics and will ensure that the organization will provide its products to the customers promptly. It will also reduce the company’s reliance on foreign companies which is important for risk reduction.

Another significant factor contributing to the increased costs is the tool manufacturing process. According to the survey, the company purchases a number of tools and details from other manufacturers, which makes it reliant on partners’ timely shipments, quality control and so on. However, CLA can consider acquiring a small tool manufacturer that could produce the most vital details and tools to decrease the dependence on suppliers. Such acquisitions will lead to significant financial synergies as the company will reduce costs as well as mitigate possible risks associated with the supplier’s power (DePamphilis, 2015). These two target companies will help CLA implement an effective acquisition and improve its performance.

Description of the Potential Targets

It is possible to consider each of the potential targets in terms of certain theories and synergy valuation models. Thus, differential efficiency theory can be used to analyze the shipping company acquisition. The theoretical framework focuses on the benefits of both companies (Piesse, Lee, Lin & Kuo, 2013). Thus, CLA will optimize its logistics and reduce costs. At that, the target company should be small and privately owned to make the acquisition beneficial for both. Privately-owned companies are more flexible in terms of their corporate culture, standards and so on. This is beneficial for the acquisition process.

According to the survey results, CLA needs rather limited shipment services and, if the target company is big it will be unable to work to its full capacity, which will lead to slippage, redundancy, decreased profit and bankruptcy. It should also be a local company as the acquisition of an international company is associated with large turnover and significant investment that is not available in this case (Yeo, 2013). Applying the diversification hypothesis, it is important to make sure that the target company can satisfy CLA’s needs in shipping particular materials. This theoretical approach focuses on the minimization of risks (Piesse et al., 2013).

As for the other target company (tool manufacturer), it is necessary to apply differential efficiency theory, which will also allow choosing the most appropriate target company. It should also be small to ensure benefits for both organizations (Piesse et al., 2013). The survey helped identify some peculiarities of the company including the fact that CLA has quite limited funds, and it cannot invest in the acquisition of a big manufacturer. Moreover, there is no need in that as a small manufacturing company can have the necessary capacity to produce the most important tools and details.

It should also be a local company that will minimize logistics costs and contribute to the development of the local market. This is also consistent with the diversification hypothesis, (Piesse et al., 2013). CLA will minimize the risks associated with partners’ failure to deliver the necessary details within the necessary terms. In the case of the tool manufacturing company acquisition, it is also possible to apply the information hypothesis (Piesse et al., 2013). CLA and the target company can share information, which will be beneficial for their operations. The companies may develop new strategies to optimize the production process.

Since both target companies are similar (they are both small local privately owned), it is possible to apply the net present value model to evaluate the effectiveness of both acquisitions (Fiorentino & Garzella, 2014). The companies are small local and privately-owned, which means the acquisition costs will not be too large. At that, it will result in the minimization of risks and costs, which will lead to an increase in profits of the company. Hence, the acquisition of these companies will be efficient.

Potential Synergies

It is necessary to note that the two target companies are similar and, hence, associated with similar synergies. Thus, expenses reduction is the potential synergy that will occur in both cases. CLA will be able to optimize its internal positions and develop more efficient operations (Daft, 2015). Importantly, shipping has been associated with frequent additional expenses due to the unavailability of some partners. Company’s own shipping solutions reduce costs. Production of some tools instead of purchasing them from other suppliers also minimizes costs.

Processes optimization is another crucial synergy associated with the acquisition of both target companies. The logistics will be improved significantly, and the production chain will not be disrupted. First, all raw materials will be delivered timely, and all the necessary tools will be available whenever needed. The efficient production chain will allow CLA to provide more products to more customers as well as develop proper relations with partners.

The financial economy can also be a potential synergy associated with the acquisition of both target companies. As has been mentioned above, both targets are local organizations. Local businesses are often subsidized by the government. The investment into local businesses will make governmental subsidies possible for CLA. It is necessary to add that these outcomes will lead to the development of the company as they need comparatively small investment.

Furthermore, self-reliance is another crucial synergy that will arise. The company will be more flexible, and some of the needs will be satisfied without addressing suppliers. This is also associated with on-time delivery saving penalties.

Finally, one more synergy expands the boundaries of the company’s benefits as the acquisition of local companies will have a favorable impact on the development of the country’s economy. The acquisition will result in the creation of jobs for local people and their empowerment. The industries and services sectors will also be affected as the new facilities will employ people who will develop their skills and knowledge.

Recommended Firm

As has been mentioned above, the target companies should be local to increase the potential synergies. Since the major facilities of CLA are located between Abu Dhabi and Dubai, this is the region where the target companies should operate. The shipping firm, Expert Future Cargo, is located in the UAE (Expert Future Cargo, 2015).

It has been acknowledged that the target companies should be small in size. The recommended firm is quite small, which means that it can satisfy the needs of CLA and will have the necessary load. The shipping firm may need certain investment as some raw materials need specific conditions when transported. At the same time, Expert Future Cargo has a significant fleet that includes vehicles with specific features (refrigerators, for example). The company can deliver freights from other countries, which is crucial as some materials are provided by companies located outside the region mentioned above. The target company will be also integrated into the delivery chain if necessary. The company is privately-owned, which will make the acquisition process easier. It will be easier to integrate the firm in terms of the culture.

Execution Plan for the Acquisition

It is possible to highlight major elements of the execution plan for the acquisition. Clearly, it is crucial to develop a detailed acquisition plan with the evaluation of its effectiveness and outcomes for both CLA and the target company. First, it is important to develop a working group that will plan and implement the acquisition process. The team will execute a comprehensive analysis of the backgrounds of the target companies and will estimate the particular benefits of the acquisition. The next stage in addressing the target company and start negotiations on the matter. It is important to highlight all the positive outcomes for the target company.

According to the survey, the entire acquisition process should be implemented within 2-3 years. This is sufficient time for the acquisition as the target company is rather small. The comparatively short acquisition period will help the companies achieve synergies quicker. During this time, the negotiation process, exit plan development, structured marketing process, purchase agreement, and the integration will be carried out. This will be possible due to the peculiarities of the target company that is small and privately-owned.

Thus, the first year will be devoted to negotiation and exit plan development. The target company will come up with tax plans and reinvestment options. It is noteworthy that the acquisition will be associated with the full sale. Structured marketing procedures will be implemented during the same year. The purchase agreement can be signed during that period as well.

The second-year will be the start of integration procedures. It is important to make sure that all the employees of the target company are aware of CLA’s background, its vision and mission, its corporate culture and so on. A series of training courses should be provided to the target companies’ employees. It is essential to pay specific attention to standards and regulations existing at CLA. This stage may need significant investment as training as well as the introduction of some technologies used at CLA may be needed. This is especially concerned with IT. As has been mentioned above, the change of some equipment may be necessary to meet the specific needs of the company. It will be important to integrate the company effectively into the production and supply chain. Since the company is small, local and privately-owned, the acquisition process will be quite short.

As far as the synergies are concerned, they can be expected during the first years after the acquisition, while some of them can be achieved earlier. The cost reduction synergy will arise during the integration process and will be substantial during the first year after the completion of the integration process. The company will successfully mitigate various risks that tend to lead to additional costs.

The synergy associated with the process optimization will arise later as the company will have a period of integration, which can have some difficulties (development of proper communication channels, the use of software and so on). Financial synergies will be achieved after the second year after the integration completion. The company is quite small, and large financial outcomes should not be expected.

Nevertheless, such synergies as self-reliance and flexibility will be substantial and will be achieved during the first year after the integration completion. CLA will reduce its reliance on foreign suppliers, which is important for risk reduction. The company will not depend on shipping companies and their availability. The synergies associated with the development of the industry and especially local communities will arise soon after the news concerning the acquisition. The acquisition is the sign of growth and development, which will create the corresponding ideas in the society.

Local people will be assured that they will have their jobs. As has been mentioned above, the acquisition will lead to the introduction of new jobs as the target company is likely to expand as CLA will be able to invest in its development. Therefore, it is clear that the acquisition of the target company will be beneficial for all stakeholders involved since it will lead to several synergies within a comparatively short period. It is noteworthy that the acquisition will lead to the development of the company, the target firm, the community as well as the entire industry.

Reference List

About us. (2014). Web.

Daft, R. (2015). Organization theory and design. Boston, MA: Cengage Learning.

DePamphilis, D. (2015). Mergers, acquisitions, and other restructuring activities. San Diego, CA: Academic Press.

Expert Future Cargo. (2015). Web.

Fiorentino, R., & Garzella, S. (2014). The synergy valuation models: Towards the real value of mergers and acquisitions. International Research Journal of Finance and Economics, 124, 71-82.

Piesse, J., Lee, C., Lin, L., & Kuo, H. (2013). Merger and acquisition: Definitions, motives, and market responses. In C. Lee & A. Lee (Eds.). Encyclopedia of finance (pp. 411-419). New York, NY: Springer Science+Business Media.

Yeo, H. (2013). Geography of mergers and acquisitions in the container shipping industry. The Asian Journal of Shipping and Logistics, 29(3), 291-314.

Introduction

Nowadays, the business world is looking for continuous expansion to generate higher revenues and enhancing the quality of the production processes. Additionally, mergers and acquisitions contribute to the strengthening of the competences and stimulation of the core competitive advantage while facing the increasing and intense competition in the world. Nonetheless, the significant differences between mergers and acquisitions tend to exist due to the different nature of the phenomenon. The takeover and acquisition imply having control of the acquired firm’s equity by 50 % (Piesse, Lee, Lin, & Kuo, 2013). In turn, the merger implies the creation of the new business unit (Piesse et. al, 2013).

Despite having slightly dissimilar nature, the intentions remain the same, as they remain an essential instrument to stay competitive on the market. In turn, the concept of the synergy enhancement also has to be taking into account while improving the quality of acquisitions and justifying their importance. It is commonly known that one of the goals of acquisitions is to enhance the synergies between the organizational and structural components (Damodaran, 2005). Nonetheless, it is important to take them into account due to the essentiality of the maintenance of the efficiency of the business processes and the lack of knowledge of the synergies applications in the context of mergers and acquisitions.

In this instance, the primary goal of the paper is to evaluate and describe merger and acquisition theories, synergies and valuation models to determine the sufficiency of their application in the real case scenarios. Additionally, it underlines the essentiality of acquisitions, mergers, and takeovers in the business world. Lastly, it determines their beneficial effects on the functioning of both participants of the process.

Merger & Acquisition Theories

Differential efficiency theory is the first theory, which is actively applied in management and economics to determine the nature and implication of the mergers and acquisitions in the real business world. It could be said that it clearly describes the relationship between the companies after the takeover and the possibility of the benefits for both sides. In this instance, it implies that that the acquisition of Company A of Company B is beneficial for both organizations, as Company A can enhance the efficiency of Company B while operating in the same industry (Piesse et. al, 2013). It implies that this activity is beneficial for both actors of acquisition and can be actively implemented in the context of the horizontal takeovers.

As for the inefficiency management theory, it implies that the efficiency of Firm B can be increased by other means due to the public origin of its status (Piesse et. al, 2013). This approach underlines different types of takeovers by emphasizing the conglomerate acquisitions. Nonetheless, both inefficiency management theory and differentiation efficiency are aimed at the enhancement of the effectiveness by optimization of the resource allocation, introduction of the new corporate culture, and creation of synergies between two companies. Nonetheless, these aspects have to be carefully assessed, as the adverse effects tend to exist during the implementations of the mergers and acquisitions.

Furthermore, the agency theory states that managers and shareholders of the company seek for the personal profit maximization and enhancement of financial positions of the individuals (Piesse et. al, 2013). In this case, the main challenge is the existence of the separate ownership of the different parts of the firm by diverse managers and representatives. Nonetheless, the primary solution to the agency issue is the implementation of the contractual nature of the agreements to avoid misinterpretation of the actions and fraud. Nonetheless, another solution is the takeover, as the inefficient management can be replaced. Consequently, the acquisitions, takeovers, and mergers are essential while solving managerial issues.

In turn, the free cash flow hypothesis implies that it can be one of the potential sources of funding of the takeovers due to the free nature of these financial resources. It remains evident that excess cash flow is necessary for financing various essential projects and activities (Piesse et. al, 2013). Additionally, it is apparent that it has a high correlation to the agency dilemma since the management does not tend to distribute cash flow efficiently for the sufficient financing of the projects. In the end, the constant management of the cash flow excess is an essentiality for the successful performance and creation of a coherent competitive advantage.

Market power hypothesis states that mergers and acquisitions can enhance the control of the company over a particular market area including the geographical expansion (Piesse et. al, 2013). In this case, horizontal and vertical takeovers have a tendency to exist and are explained by the desire of the companies to increase market power. It could be said that these types of activities strengthen the position on the market by establishing a coherent flow of resources in the supply chain.

Furthermore, the diversification hypothesis implies creating a distinct competitive advantage by increasing the number of activities and reducing risks (Piesse et. al, 2013). In this instance, it is clear that diversification is one of the vital elements while creating a competitive advantage and improving the company’s position on the market. It could be said that the acquisition can develop the company’s diversification by expanding the range of the provided services and products.

The information hypothesis implies acquiring higher volumes of information during the takeovers (Piesse et. al, 2013). It could be said that in this instance, the companies tend to learn from each other due to the availability of the information. Additionally, it presents the information about the company’s values, status, and financial targets, which can be enhanced during the implementation process of acquisitions. Nonetheless, the manipulations of the share price might tend to exist due to the individual aims of the managerial authorities (Piesse et. al, 2013).

Lastly, the bankruptcy avoidance hypothesis states that the acquisitions, takeovers, and mergers contribute to the flow of the financial resources and absence of the hardships with resource allocation (Piesse et. al, 2013). It remains evident that acquisitions help avoid the possibility of bankruptcy due to the improvement of the financial position. It could be said that the companies can be proposed being acquired to improve their budgeting and performance.

In the end, all of the hypotheses, which are mentioned above underline the essentiality and justification of the differential efficiency theory. It remains evident that the action of the company A can highly improve the position of the company B due to the creation of synergies. In this instance, it will be beneficial for both parties, as their resources can be optimized and their importance can be increased on the market. Lastly, it contributes to the avoidance of risks and finding solutions to complex issues, which often take place in the business world.

Major Synergies Valuation Models

Firstly, synergy implies the generation of the additional value during the integration of the firms. It could be said that it underlines the fundamental intention of the acquisition or takeover due to the essentiality of the profit maximization. In this case, two types of synergies such as operating and financial tend to exist. It remains evident that the operating synergy implies having a high influence on the flow of operations and implementation of the economies of scale (Damodaran, 2005).

In turn, the financial synergies are generated while applying tax benefits and other financial operations for the optimization of cash flow and the creation of the cash excess (Damodaran, 2005). In the end, the synergies provide a relevant understanding of the generation of the additional value and beneficial nature of acquisitions. Additionally, they are fundamental elements of the company’s success on the market.

In this instance, two major synergies valuation models such as net present value and relative valuation have a tendency to exist. Both of these approaches determine the value of the synergy but discover it from the different perceptions. Firstly, net present value is usually used for the representation of the particular features of the corporate strategy and organizational framework, and the synergy value is reflected by the level of risks of the synergy flows (Fiorentino & Garzella, 2014). It could be said that it discovers the synergies in the enhancement of the operation processes while integrating the organizations.

In turn, the net value is presented by discounted cash flow, in which the correlation between present synergy value and the deals, and discounted future earning, in which the relationship between present synergy value and the future earnings. Nonetheless, analytic and synthetic approaches tend to exist, and the synthetic scheme implies the differences in the chosen values between both firms and the combined firm. In turn, the analytic approach presents the simple correlation between the present value of the synergy and the chosen term. This approach contributes to the measurement of the synergies and coherent assessment of their implications.

In turn, relative valuation assesses the synergies by their market prices. It could be sais that it provides a relevant understanding of the value creation in the financial context. In this case, the value of the synergy is determined by comparing it to the particular constant value, which is relevant for the industry (Fiorentino & Garzella, 2014). It could be said that it contributes to the understanding of the company’s position on the market about the currently acquired firm. Additionally, this valuation helps determine the interrelationship and differences between values of two firms, which are the participants of the acquisition procedure.

The relative valuation implies utilizing two models for the analysis such as multiple and comparable transaction models. This method tends to establish the constant variable, which plays the role of the mediator and contributor to the assessment of the issue between the companies. Multiple approach states the relationship of the product of synergy flows and constant common variables (Fiorentino & Garzella, 2014).

In turn, the comparable transaction model implies the measurement of the interrelationship between the product of synergy flows and the constant and common variable for the comparable transactions (Fiorentino & Garzella, 2014). In this instance, the common variable is also defined and contributes to the creation of the relevant image of the synergy valuation in the context of the assessment of the company’s efficiency after the acquisition or takeover.

Nonetheless, in this case, analytic and synthetic ways of analysis are also present. It could be said that the analytic approaches were explained in the previous paragraphs. Nonetheless, the synthetic methods are more complicated, as they require a combination of the variables of two participants of the acquisition. For instance, the synthetic approach implies the measurement of the synergy value in relation to the variance of the several values of the combined firm and two independent companies (Fiorentino & Garzella, 2014). It helps to see the modifications of the value of the synergy before and after the acquisition. In the end, it could be said that the valuation models cultivate an understanding of the necessity of acquisitions and their importance while defining the significance of acquisitions.

In conclusion, the evaluation and determination of the values while having synergies in the context of the acquisitions. However, the synergy valuation models have to be implemented carefully to avoid misinterpretation in the analysis. It remains evident that major synergy valuation models have to be actively implemented, as the results are often misinterpreted and not considered in the desired context. Lastly, both synthetic and analytical models have to be taken into account, as they help evaluate the synergies of the complex mechanism, as, despite the observation from the dissimilar perspectives, they tend to present the current image of the synergy valuation coherently.

References

Damodaran, A. (2005). The value of synergy. Web.

Fiorentino, R., & Garzella, S. (2014). The synergy valuation models: Towards the real value of mergers and acquisitions. International Research Journal of Finance and Economics, 124, 71-82.

Piesse, J., Lee, C., Lin, L., & Kuo, H. (2013). Merger and acquisition: Definitions, motives, and market responses. In C. Lee & A. Lee (Eds.). Encyclopedia of finance (pp. 411-419). New York, NY: Springer Science+Business Media.