The paper deals with the issue of mergers and acquisitions on the western market, viewing the topic from the standpoint of their failure and success. The subject is an extremely important one at present, as, on the one side, there is a trend towards major international mergers and acquisitions and, on the other side, many researches indicate that more than half of deals fail.
Having done the research on main factors of failure of Mergers and Acquisitions, it was established that companies fail transactions, because they forget about shareholders' interests and are often driven by their own interests and motivations. While shareholders are interested in financial flows that can generate a particular transaction, managers often overpay for the target, by mistake and sometimes even intentionally, and thus transfer wealth to target's company. Secondly, managers pay often in stock rather than in cash, communicating in such a way to shareholders about company's insufficient liquidity. There have been determined some other less frequent factors of failure, but still affecting acquiring company's shareholders.
The moral of the paper consists in that shareholders have an uncanny knock to react immediately to changes in corporate structure by pushing up or by pulling down the stock prices. Although there exist numerous motivations for mergers and acquisitions, companies must always set in advance the ultimate goal of value creation for their shareholders
[...] The following hypothesis has been proven in a result of carried out analysis: order to minimize at a very high extent the risk of failure of Mergers and Acquisitions, buying companies should pursue the primary goal of value creation for their shareholders and communicate them positive messages.” The object of the study is merger and acquisition transactions carried out by American and European public companies. The subject of the study is value creation for shareholders of buying companies, measured through the price of shares that they own. [...]
[...] Reasons for overpaying Since the results of a survey have shown that the most popular reason of failure of mergers and acquisitions is overpaying for the target company, the second part of a survey was concentrated around this question in order to give more concrete recommendations to the buying companies. All of the interrogated Managers mentioned two reasons for overpaying. Absolutely all of them have agreed that companies overpay because there is always increased competition for financially stable and strategically attractive targets. [...]
[...] Through mergers and acquisitions companies may reduce interest for newcomers by creating very expensive norms of entrance; Consolidation of the position at the maturity stage through the external growth let companies continue increasing their market shares in spite of decreased demand and without creation of overcapacity on the market; Reduction of uncertainty coming from the economic environment is another defensive motivation pursued by companies. In a period of rapid change, such as often accompanies a boom, firms may seek to protect themselves by merging with others. [...]
[...] In the process of a research it was also established that in order to avoid the main reason of failure of mergers overpaying and thus to create more value for shareholders, buying companies should start with a thorough analysis of a target in order to find out if there are some discouraging elements intentionally hidden by the target; they must be accurate and realistic when appreciating their abilities to realise potential synergies and when estimating these synergies as well; during the evaluation process buying companies should rely on experts in target's valuation; managers should understand that whether the payment is made in cash or in stock, there is always a high risk of failure if the price is too high; and especially, they should not overpay intentionally to attract public attention and to demonstrate financial health, because interested parties and investors are well informed about this, it's their job to look for and invest in healthy companies it is sufficient to stay transparent with them. [...]
[...] The phenomenon booms in mergers and acquisitions will increase at a much faster rate in near future, because the world markets are becoming more integrated due to open trade policies and hence more and more companies are adopting and forming strategic alliances in order to compete in the competitive world and to maintain there market shares. Part II creation and DESTRUCTION of VALUE through mergers and acquisitions The object of the merger and acquisition transaction is a Value Creation First of all, we shall define this notion and analyse the potential of its creation from the buyer's standpoint. [...]
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