Economics

The changing trends and the competitive nature of the markets have made mergers and amalgamations a common business trend. This decision is ordinarily taken as a counteracting move for the challenges in the market. These challenges will vary in manifestations. They may range from competition to looming collapse or projected bankruptcy prospects. To evade the massive losses companies will opted to merger. Some times it is done to reduce competition this will be achieved through the purchase of all the shares in a competing company. In an attempt to reduce mass losses, the company may merge with another company through combining its assets and liabilities to become one.  

Mergers may also serve to achieve increased economies of scale. This will be done through reduced costs of production, hence reduced price and a subsequent increase turnover. Besides administrative, legal and professional cost will be considerably reduced when companies either merge or amalgamate. This move may also increase the professional pool thereby increasing the technical capability of the company. The formed company will have to pay relatively low taxes relative to the initial position. Similarly, the financial base of the formed company may increase its prospects for expansion. Where only the two companies existed the new company may have the advantage of monopoly. The aforementioned not withstanding, failure of this mergers and amalgamations has been a common trend in recent past. In this paper the possible causes are discussed besides the subsequent disposal of the assets and liabilities.

Firstly, the process of acquisition of shares or assets is sometimes hastened. Besides the bidding process allows only the highest bidder to acquire the property, this brings a high likelihood of entering into over expenditure. It later becomes extremely hard to cover these costs over time. Sometimes mergers and amalgamations fail due to acquisition indigestion. Ordinarily this is brought about as a result of differences in culture and production policies. It emerges that if the acquisition is small, it may be neglected hence its imminent failure.

In expansion of market, market research plays a pivotal role. Similarly, acquisitions deserve that a lot of research is sufficiently carried out before the commencement of the acquisition process. Shoddy research may cause tremendous lose to the investor. It is also becoming evident that some business may not manage well the acquired diversity translating to failure of the merger or amalgam. This happens particularly where the productivity is not related in the two merged companies.

It is important that previous experience in any endeavor be considered in undertaking any venture. Similarly, mergers and acquisition could need the same experience in the effective acquisition process. However most of the mergers and amalgamation are undertaken by companies that are doing it for the first time. This has always jeopardized the survival of the mergers. In addition some mergers and amalgams were undertaken because of divestitures, which later haunted the new owners.

Some of the mergers and amalgamations may fail as a result of the diversities in the cultures between the former owner and the new owner or new management. This will bring about both confusion and probably conflict of interests.  On this basis, it becomes inevitable that most prior cultural integration be tested. Besides, the administrative practices and culture between the two companies may largely differ hence a disjointed management. This disjointed management will contribute to the imminent failure by the merger and amalgam alike.

It is common practice that as business expands, the fight for leadership may be triggered. The managers from the two initial ventures will both want to be at the helm. Consequently a conflict of interest will be witnessed which will translate to company failure. Where a detailed evaluation by the acquirer was not done, the costs of acquisition may not be met as projected. This dwells a blow on the morale of the management. It is also very important to manage the integration of the new outfit with keen and quality management. Where it is not done, the merger may ultimately fail. In some cases take-over takes time before it is effected, this may equally contribute to failure because the invested funds may not be earning any returns. Once the merging process is over, integration should be effected in the key areas of finance, design, personnel and production. Even after integrating these aspects, they should be implemented with due diligence.

Mergers sometimes involve two equal partners. In such cases personal egos do clash amongst the top management. It is therefore trick in the effecting of equal partner mergers. Generally, when weak partners are taken over by stronger partners, where the management or production crisis was at the negative extreme, research shows that the formed merger may be liquidated after all. In view of this, some mergers may be termed incompatible if the capital base is largely variable.

Auditing is very important in any firm. In view of this, a thorough audit of the target company should be done. Where such audits fail, there is normally a high likelihood that the company will not pull through. A detailed evaluation of the resources, finished products, litigations, unsecured loans and the general financial position of the target company is very important. This should be done by a reputable professional or firm. If there are any shortfalls in doing this, it may contribute to the failure of the merger.

Human resource management will also take centre stage if the merger has to be success. If the human resource factors are well analyzed and a proper strategy effected, it may play a pivotal role in policy formulation and subsequent implementation. Similarly an alternative strategy should be developed forthwith for any eventualities. Management should be keen so as to ensure the identity is not lost. Loosing identity may also mean loss of customers and market. If it happens it may reduce the efficiency expected by buyers.

Corporate restructuring
One the merger or the amalgam has failed, restructuring becomes of great importance. Divestitures are mostly adopted for the shear reason of retaining the original identity. This is ordinarily opted for where the parent company feels the strategy of the acquired company does not fit in its original strategy. Within this premise, management deems it fit to have the subsidiary under a different management all together.

Companies may also opt for an initial public offer of the shares of the subsidiary. Ordinarily, this may be equivalent to a partial sell-off (curve-out). Then the company may have a newly formed public listed company. However, the parent company will have to maintain control of the new company. It is mostly utilized when one of the firms seems to be doing by far better than the other. The main distinction here is that the shares are sold to the public. However, it is important to note that these curve-outs can cause conflicts with the parent firm.

In the event that the company wants the subsidiary to be independent, companies opt for spin-offs. In this type of restructuring, the company sells the shares through dividends of the subsidiary. There is no cash generated as it is done through dividends. Subsequently, the subsidiary becomes an independent entity as in curve-outs.

Strongly, the three restructuring methods will have the capital base remain within the main stream. Besides, the three methods may only be expanding their management base without loosing the capital base. Ultimately the three offer alternative worthwhile restructuring criteria.