November 19, 2011
Business Combination & Risk Management - Part 1
In the beginning, corporations were given a very narrow legal mandate. However, as capitalism grew, the legal rights of artificial entities were expanded to mirror those of natural persons. Consequently, corporations acquired the rights to own and be owned, sue and be sued and even engage in activities outside of their charters.
No other legal right has corporations exercised more than the right to enter into unions - a recent study by Thomson Reuters indicates that the dollar value of global mergers & acquisitions activities in 2010 surpassed a whopping $2.4 trillion and this number is projected to grow in the coming years as capital market activities resurge.
Business combination is a good strategy to grow inorganically, when properly executed; it can lead to economies of scale, give a company opportunity to make a foray into uncharted territories, acquire an important source of supply, cross-sell products and expand internationally.
However, bigger is not always better. When poorly executed, mergers and acquisitions can put a company on a perilous journey - sometimes leading to the demise of even the biggest of corporations. Lack of proper planning, management hubris, failure to evaluate the quality of a target's assets, valuation modeling mistakes, inadvertent violation of laws and a lackadaisical attitude on the part of the Board have all lead to business combinations horror stories.
While there have been uproars about executive remuneration in recent times, vast more money are wasted on poor acquisitions every year - it is therefore essential to examine business combination from a risk management standpoint.
In part one of this paper, we introduce the concept of mergers and acquisition and succinctly discuss successes and failures in business combinations. We also discuss how to develop a sound pre-acquisition strategy. In part two of the paper, we will examine the approaches for designing effective post-merger plans in order to ensure that the combining entities are properly integrated. We will also examine the accounting, regulatory and valuation issues to consider in a merger and acquisition transaction.
To read the full article click HERE.
Posted by oawoga at 04:17 AM
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November 03, 2011
About Tony Awoga
Tony is a consultant whose job focus is on accounting, auditing, business
intelligence, analytics, valuation and risk management. He holds a Masters of Accountancy degree from the Bowling Green State University, Ohio USA. He is also a Certified Public Accountant (CPA) and a Professional Risk Manager (PRM). Tony is the Treasurer of PRMIA DC Chapter.
Posted by oawoga at 06:50 AM
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