Mergers and Acquisitions   Term Paper ID:41466 Click to get this paper

Essay Subject: Quick growth for a company always has its risks Three options are aquiring another ...... More...

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Paper Abstract: Quick growth for a company always has its risks. Three options are aquiring another company in a leveraged buyout, making an initial public offering of stock, and merging with another comany of aproximately the same size. Paper Introduction: Mergers and Acquisitions Quick expansion is a perilous undertaking for any organization forit means rapid changes with unknown results Yet the general rule inbusiness is grow or die A privately-held company has several optionsopen to them when they feel they are ready to expand and each hasdrawbacks to consider If the company is rich in cash they might consider acquiringanother probably smaller company The buyer gains the consumer base andassets of the other What they do not automatically gain is the value Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Employees fear for their jobs andcareers when their company is acquired. The owner's will lose their subchapter S tax status, which allowsthe earnings of a closely-held corporation to be passed through like apartnership, andthe company will suddenly need to pay corporate taxes on its income. Plus there are all the costs ofassimilating the two overhead structures. They will need to produce audited financial statements. If the company is rich in cash, they might consider acquiringanother, probably smaller company. An increase in stock means a dilution of earnings, which will cut theoriginal owner's income significantly until the gains of growth can berealized. The buyer gains the consumer base andassets of the other. Merging with another company of a similar size is a very attractiveoption, especially if it can be done over time. If they bid underthe value of the stock held by the owners, the individual owners will losemoney in the offering. First there are oralagreements and sharing of customers, then a joint-venture while thecompanies size up the transition costs, and finally the merger itself. The question is which set of risks the company can most easilymanage. Many leave, and those that staymust be assimilated. If the companies have different financial structures, onemust deal with a higher debt-to-equity ratio while others see the benefitof higher leveraged earnings diminished. At the very leasttheir will be a delay in realizing the synergies between the twobusinesses. Earnings may drop for the company as it spends money toretrain employees, merges computer systems, shifts inventory, etc.Furthermore, an acquired company is often in bad financial straits. Herethe major risk is loss of control, as both owners must deal with equallystrong cohorts. It issufficient to say that money raised through an IPO is not "free". It too has its drawbacks. The buyer may have retained earnings to use, and the ownersmight invest some of their own funds, but with an acquisition comes debtupon which the interest must be paid every year. Obviously quick growth comes at a significant price no matter how itis done. There is no accurate methodof predicting the amount investors will pay for a stock. Yet the general rule inbusiness is "grow or die". Mergers and Acquisitions Quick expansion is a perilous undertaking for any organization, forit means rapid changes with unknown results. This will sap the parentcompany of cash. Raising more equity through an initial public offering of stock (IPO)is an attractive option for many companies. What they do not automatically gain is the value ofthe human capital associated with their purchase, which is all too oftenthe organizations most important asset. Of even greater risk is the fact that buyouts are nearly alwaysleveraged. Worst of all, a company that "goes public" suddenly must deal with allof the public scrutiny and associated costs that comes with financialreporting. Possiblythis will include a major overhaul of their accounting department toimplement control procedures that will make the CPA firm happy. This makes the true cost of a purchase hard topredict. Thus acquiring another company means taking on a great deal ofrisk with unpredictable promise of gaining a reward. A privately-held company has several optionsopen to them when they feel they are ready to expand, and each hasdrawbacks to consider. Itmight need significant investment just to keep it going. Thecosts of the offering itself are substantial. Stockvalues fluctuate, and the company may be faced with angry owners for valuelosses that have nothing to do with the company's performance. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.