Business Decisions: Acquisitions and MergersEssay Preview: Business Decisions: Acquisitions and MergersReport this essayBusiness Decisions: Acquisitions and MergersGrowth in the banking industry is difficult due to increasing competition, the height of the increasing regulatory environment, and the rising expectations of customers. Growth must occur in most cases by acquisition. The decision to acquire or merge with another business is one that should entail a great deal of research before committing to the transaction. Research should begin with understanding the business purpose, the financial details of the business, and the fit between the two entities. This paper will explore the methods used for researching potential combinations and a general plan for proceeding with the transaction.
First StepsThe first step of any acquisition plan should be to develop clear priorities for the transaction. The purpose should be clear to all members of management. Possible purposes for the acquisition could be creating a larger product offering for clients, eliminating competition, or expanding into different markets. This purpose will help to develop criteria when examining possible potential acquisition targets. The criteria should ensure that the potential acquisition targets could help to accomplish the goals of the company in question. Criteria can be formatted in the form of a due diligence checklist. According to Best Practices LLC, the completion of this checklist will allow both companies to have buy-in on the overall strategic value and direction of the combination before proceeding with integration.
Analyzing Financial InformationExamining the current financial information of a potential acquisition is extremely important. Analysis should be performed on current as well as past financial statements. These financial statements should include the balance sheet, the income statement, and the statement of cash flows. This information will provide data on assets, liabilities, and income as well as ratios on accounts receivable conversion and debt to equity information. The income information should also be provided broken out by product line. This will provide researchers with information on the success of the different lines offered by the company and potential for growth. Additionally, researchers should request copies of previous tax returns to substantiate earnings over the past ten years. Examination of all this information will add to managements knowledge of the company as well as the possible
Consequently, financial analysts should use their current and past experience to provide data. The data should be presented in an analytic format to inform employees and prospective customers during a time when the company is undergoing changes. The data should also serve as a reference for financial analysis, business plan design, and management planning, among other processes.
Brief Information for Finance Analysts and Nonfinancial Analysts Regarding the Acquisition Process
For an investor or a market leader to own a business, the acquisition process should, for financial analysts, occur in one of three methods:
• Analysis: The acquisition review process of a company, such as a merger, is often an important aspect of the application of a research strategy.
• Financial Analysis: An analyst will likely evaluate the specific company in question in a variety of ways. For example, through its own analysis of its financial performance, its business, and its future activities, analysts can assist in developing a plan to determine the company’s level of profitability and current market value in a specific market, such as a bank. (To be eligible for a financial analysis credit, the analyst must complete or publish a report that includes a summary of all of the information that was provided or acquired by a third party for use therein, and a description of those analyses and report plans for that market.)
• Nonfinancial Analysis: This is where the analysts can evaluate a company’s operations, including financial reporting, performance characteristics, risks and reward targets, the effectiveness of its competitors, and how the company operates economically. It is important that analysts learn about such aspects while attending to the strategic questions raised in a variety of business scenarios and issues.
As a result, analysts also need to make sure that their analysts have clear and concise information about the situation. A few examples of analysts that would be best suited for nonfinancial analysis:
• Senior Analyst
A company is often criticized for hiring a senior analyst. This can be very effective as these companies offer high-level leadership within their management. This can save the company valuable time to improve their efficiency.
• Vice President/Chief Financial Officer
In many years, many firms, including large corporations, have become an important part of accounting and business planning efforts. The most important part is that these organizations become valuable and relevant to the investor’s analysis. (This is where the Senior Analyst is a great choice.) An analyst will use their background and experience to identify business and market opportunities that may emerge. A Senior Analyst’s goal is to generate insights that could help explain the risks and opportunities presented in a business that has already been created.
Additional Information
The information provided on these pages should be considered a good resource to financial analysts, in any case as the process progresses.