Casestudy
Casestudy
Crossboarder merger and acquisition
Thereare various reasons why emerging markets are mostly faced withsituations of cross-border mergers and acquisitions. These marketsare usually characterized with a huge potential for providinginvestors with the opportunities that they do require putting uptheir portfolio on activities that are bound to generate them greatprofits.Inthe recent periods, most firms in the emerging markets have had ahuge impact in terms of the foreign direct investments that they makein other countries (Kyvik,2013).This goes a long way to show the position that they do hold as far asensuring that there is growth in business is concerned.
Theone feature that makes it quite possible for firms in the emergingmarkets to take part in mergers and acquisitions is because theystill have a huge potential that is yet to be utilized fully. Most ofthese economies are in the era where there is a massive developmentof infrastructure and other aspects of the economy. As such, they dorequire huge amounts of goods and services, an aspect that makes itquite appropriate for business development in such areas.
Giventhe fact that the firms in these areas may lack enough capacity toprovide the goods and services that are needed, they, therefore,enter a state where they partner with companies from other countriesthat have a well elaborate experience in the provision of the saidgoods and services (Kyvik,2013).The foreign firms go a long way in the provision of the technical andlogistical support that is needed by the local companies in a bid tomake it possible to provide up-to-standard services. In somesituations, the local companies could rely on the immense capitalbase that the foreign company could bring on board which could bequite vital for providing for the facilitation of the activities thatthey are engaged in.
Thereare also some cases of managerial problems that are normally faced bycompanies located in emerging markets. As a result, such companiescould seek to merge with another foreign company that has had greatsuccess in the management of its affairs. The foreign company,therefore, holds a lifeline on which the local company in question isable to survive on.
Inthe cases where a given local company appears to be quite incapableof handling a certain activity due to the intensive nature of thedeal, some foreign companies could come in and completely take overthe operations of the company (Kyvik,2013).This is more often done in cases where the local company hascompletely lost the grip in the running of its activities and,therefore, prefers to get completely out of the business withoutshutting it down all together.
Roleof activist fund in merger and acquisition
Activistsin mergers play a big role in fostering the mergers of companies thatare targeted. They do this through engaging the management of thecompanies that are on the verge of collapse with an aim of makingthem merge with other firms so as to make it possible to sustaintheir operations. They aim to achieve this without necessarilybringing about change in the control of the said companies(DePamphilis, 2013). Merger activists by a huge margin help toprotect a given firm from being acquired by another one. Variousstudies show that after the elimination of the cases of mergernegotiations that activist funds normally do, the rate ofacquisitions grows about four times to settle at 24%. This situationshows the crucial role that merger activists play in the process asthey aim to make the activities of the firms that they are concernedwith fully operational.
Thereare various elements that activists consider while negotiatingthrough a given merger process of a firm. One of them is theprofitability policies of the two firms involved (DePamphilis, 2013).They are normally interested in firms that have a record of turninginvestments into a worthwhile portfolio that is bound to rake in hugeamounts of profits. Where they find such kind of companies, they dotheir level best to persuade them to merge with the target companythat is not doing so well. In most cases, for the process of a mergerto be viable, the target company needs to have a deficientprofitability profile that acts against it as far as being able toprovide huge returns for the investments made is concerned.
Anotherfactor that these activists consider is the history of the companyregarding engaging in mergers. Quite generally some companies havebeen successful in engaging in mergers and have gone ahead to makefirms that were on the verge of collapsing to remain operational(DePamphilis, 2013). The activists, therefore, target such companieswhen they are looking for a company that could merge with a one thatthey do have in mind so as to make it successful and in a goodposition to remain profitable. Among the mergers that have gone to bequite profitable are such as those of Mobil and Exxon as they reachedan agreement that would see the two companies engage in the provisionof oil.
Amongthe various strategies that the activists use to achieve betterresults is through going through the previous performance of thecompanies that they do intend to bring together in the process of amerger. This activity enables these people to identify the areas thatare lacing and the most appropriate firm that could be chosen andwhich bears a high likelihood of bringing a turn-around to the firmwhich seems to have run out of control of its operations. They, afterthat carry out an analysis of how both the two companies stand tobenefit each other when they do come together in the process of amerger. This exercise is crucial since it is the one that helps todetermine if both the two firms will be willing to join in theprocess of the merger. The success of a merger is by far determinedby the prowess of the prior exercises that the activists will havecarried out. The success of the merger between Disney and Pixar canbe seen as a consequence of good strategies applied by the activistfund.Challengeof the activist fund
Inspite of the impact that activist fund have in the market in terms ofcalling for mergers, they also have some considerable level ofchallenge. One of them includes the uncertainty that lies in newindustries or industry in which they have little information about.They may not have enough and viable information that could make itpossible for them to come up with merging company that has a highassurance of profitability (Bratton& McCahery, 2015).Another challenge lies in the fact that the market is usuallyversatile and subject to be affected by several external elements ofthe environment that are beyond their control. They, may, therefore,not be in a good condition to call for a merger action between twocompanies that will make them fully comfortable that it is bound tobe hugely profitable.
References
Bratton,W.B.,& McCahery, J. (2015). Institutional investor activism :hedge funds and private equity, economics and regulation. Oxford, UK:Oxford University Press.
DePamphilis,D. M. (2013). Mergers,acquisitions, and other restructuring activities: An integratedapproach to process, tools, cases, and solutions.
Kyvik,O. (2013). Culturalcomplexities in cross border mergers & acquisitions.Place of publication not identified: Grin Verla