It is a well-known fact that, nowadays, the corporate world is getting a lot bigger, and there is one key factor that is playing a huge role in the constant growth and expansion of industry: globalization.
What difference has globalization made in the world of commerce?
Technological innovations have enabled improvements in transportation and communication. Getting in touch with the other side of the world doesn’t take weeks anymore, it takes seconds. Each individual has instant access to the entire world, and the efficiency of modern transportation means individuals—and businesses—no longer have to restrict themselves to within their own political borders. This is called international diversification—it’s called innovation—and it has made a significant impact on the way corporations can be run. International business arrangements have developed into multinational enterprises and transnational corporations—it has led to an increase in the development of, and the opportunity for, mergers and acquisitions.
Global expansion, however, has also made mergers and acquisitions a lot more critical to the success of the corporation—and it has made things a lot more complex. If you are considering whether a merger or acquisition may prove beneficial for your company, you may want to seek out an advisory service first.
What are the benefits of mergers and acquisitions?
Mergers and acquisitions (http://en.wikipedia.org/wiki/Mergers_and_acquisitions) are intrinsic components of strategic management and corporate finance, and they generally focus on the buying, selling, dividing, and combining of different companies or entities that could make a significant impact on the growth or development of an enterprise within its sector. Mergers and acquisitions refer to the restructuring of one or multiple organizations—a reorganization that could in turn lead to the growth of positive value. On a larger scale, when multiple smaller organizations are concentrated into one or a few larger companies through mergers and acquisitions, the process is referred to as consolidation.
What’s the difference between a merger and an acquisition?
In terms of the economic outcome of both mergers and acquisitions, it can be tricky to distinguish the two terms. Mergers refer to the legal consolidation of two companies into one. Acquisitions, on the other hand, occur when one company is taken over by another; the company that takes over establishes itself as the new owner, and the other company, the target company, remains as an independent legal entity that is controlled by the acquiring company. Both mergers and acquisitions, however, can result in consolidation. Generally speaking, when the CEOs from both companies are in agreement that a merger would benefit them both, it is referred to as a merger of equals. When the target company is unwilling to be purchased, though, the deal is known as “unfriendly,” and it is regarded as an acquisition.
Why are advisory services so necessary to the formation of mergers and acquisitions?
Globalization has increased the magnitude and growth of the deal values that are associated with each merger and acquisition. As a result, there has been a recent increase in the occurrence of “mega-mergers.” What this means is there is a lot more at stake in the terms of the agreement, and advisory services have begun to play a more crucial role than ever before.
Advisory services are often sought out during mergers and acquisitions, regardless of the size or global scale of the organisations that face consolidation. Advisory services facilitate the undertaking and can actually help to maximize the overall value of the transaction. Advisory services form an experienced and professional third party to the agreement; they can help to facilitate communication between CEOs of both companies, and can ensure that the outcome of the deal will be as successful and lucrative as possible.
What factors do advisory services focus on to ensure the success of the merger or acquisition?
There are ten key factors (http://umu.diva-portal.org/smash/get/diva2:141248/FULLTEXT01.pdf) that advisory services are instrumental in overseeing and facilitating. Advisory services ensure that:
1. There are clear and complete objectives and goals, and that the overall scope of the project is clearly considered and expressed to and by both parties;
2. Clients have been consulted regarding the proposed merger or acquisition and have accepted the proposed terms;
3. The project manager is both competent enough to manage the merger or acquisition, and that he or she is committed to the success of the project;
4. The project team members are competent and committed to the project;
5. Communication and the sharing or exchange of information is being handled effectively;
6. The project plan is developing properly;
7. Resource planning has been taken into consideration and is under way;
8. Time management and confidentiality are being enforced; and
9. There is a proper price evaluation and financing scheme.
Most importantly, advisory services are instrumental in managing risk. Each of these factors is critical in not only bringing the merger or acquisition into fruition, but also in ensuring the success of that merger or acquisition.