Factors to Consider Before Merger and Acquisition

Introduction

1.1. Background to the research

According to the Chambers 20th Century dictionary the research could be defined as a “Systematic investigation towards increasing the sum of knowledge”. It was also stated as “An endeavor to discover new or collate old facts by the scientific study of a subject or by a course of critical investigation” in the Concise Oxford Dictionary. (The Concise Oxford Dictionary)

Research can also be defined as the process which helps to find something new or it helps in clarifying certain doubts about the research that was being done already. This research looks in to the factors that encourage business organization all over the world to engage in the process of mergers and acquisitions (M&A). It also examines the factors and incentives on the basis of which the M&A have been a continuous popular strategy for the firms for expanding their businesses. Why and what type of firms will engage in this process.

This research also helps the firms to understand the benefits that they can get from the M&A process. There are various other growth and diversification strategies like franchising, licensing and Joint ventures which are popular amongst the business organizations.

This research also discussed the challenges that firms face while engaging in the process of M&A. M&A is not an easy process because it is difficult for the organizations that are previously competing with each other to join and work together as one new entity.

Organizations have different culture; they are using different management practices. It is very difficult for the employees to adjust to the new culture of the organization. In this research it is also going to be found out that what benefits that a firm can get after a successful M&A process.

Mergers and acquisitions is an issue of great academic interest. There are studies about this issue in the field of industrial economic and strategic management as well as on organizational theories. Especially in the current economic situation, where companies are facing liquidity problems and facing tough competitions from their rivals, M&A is an important survival strategy as well for the organizations. With the globalization and the world is being a global village, the need for companies to join together and to cater the needs of the customers have to work together.

The phenomenon of M&A is equally popular amongst the firms with same kind of business as well as for the organization in different business. The firm that is discussed as a case study in this research is a big pharmaceutical company of the world. After the merger the company became the biggest pharmaceutical company of the world. In year 1998 the volume of business through the M&A process was 2.4 trillion. This increases every year with more and more companies are entering the process of M&A. In this research the case study GlaxoSmithKline (GSK) was discussed. It is going to be evaluated in this research that how the organization benefitted from the merger and acquisition process and whether it was a successful merger or not.

In this research the definitions of M&A given by different authors and the types of mergers were also discussed. The motive that attracted the organization to involve in the process of mergers and acquisition and the benefits that they got from this process was also discussed.

M&A is a complex process that involves two different companies, having their separate identity, so the problem arises in the integration process after the M&A. In order to measure the performance of GSK the financial statements are analyzed.

1.2. Significance of the Study

This research will help in finding out the factors that encourages companies to engage in the process of mergers and acquisition (M&A). What are the factors that firms have to consider while starting the process of mergers and acquisitions? It is also going to be find out in the research that why companies are using M&A as business expansion strategy for the growth of their business both in the International as well as local markets.

This research will help in better understanding of the issues that are involved in the process of M&A. The firms have to look at the human resource aspect of the mergers and acquisitions instead of just considering the financial and business aspect.

Apart from the factors and parties involved in the process of mergers and acquisitions it is also going to be find out that what are the factors that have to be managed in the process, otherwise they will result in the failures of the whole process of M&A. This study will also help the companies who are planning to engage in the process of M&A about the relationship between the parties involved in this whole process.

Globalization has made it easy for the firms to interact with each other, share their experiences about the markets, made strategic alliances to expand their businesses. This study will help in understanding the fat that how firms are using the mergers and acquisition as international business expansion strategy. It is also going to be find out in this study that why companies adopt the M&A to expand their businesses in the international as well as national market when they have other business expansion strategies available to them like Strategic Alliances and joint ventures.

1.3. Statement of Purpose

The purpose of this study was to find out that what were the factors that encouraged firms to engage in the process of mergers and acquisition? This research was going to evaluate the different business growth and expansion strategies that firm are using in order to expand their businesses. As GSK was taken as case study for discussing the mergers and acquisition as a business growth strategy, it was also going to be discusses that why GSK selected M&A as a growth strategy to expand their business.

This research also looked into the factors that encouraged firms in general and GSK in particular to involved in M&A process. It was also going to evaluated that what were the positive points, that GSK would get after their merger and what were the challenges that GSK faced in the during merger and pre merger phase .

In order to evaluate the performance of the GSK in this research the financial statement of the GSK was evaluated so as to saw the performance of the company in the post merger stage. This research looked at the annual turnover of the GSK after their merger so as to see that how much growth company had after the merger. In this report the earning per share (EPS) of the GSK was discussed and compared over few years in order to get the feel of that how well the company was working and how much benefit, the shareholders of the company had of their M&A.

The purpose of doing this research to help the students, researchers and companies to understand that how they can merger and acquisition effectively in order to expand their businesses. This research is really helpful full for the companies who are interested in doing mergers as they come to know through this research that what are the benefits they can get after the M&A process.

They will also come to know through this research that what will be the challenges that they will have to face if they want to be a part of mergers and acquisition process. This research will provide will help the firms who are interested in the process of mergers and acquisition to understand that how they will face with the problem of cultural differences if they are going for mergers with organizations from others cultures. They will also come to know that how important is the proper integration of cultures and integration of different department of the organization in the successful process of M&A.

1.4. Aims and objectives

This research will help the companies who are planning to engage in the process of mergers and acquisitions. They come to know through this research that what factors they have to take into consideration while going for mergers and acquisitions. What are the benefits and what are the negatives of M&A.

Who are the parties that are involved in merger and acquisition?

The research has several aims regarding mergers and acquisitions of companies, especially Glaxo and SmithKilne. Merger and Acquisitions are never easy as many companies fail in their initial steps but some of them succeeding as well although number of failure is high. They fail because they could not recognize the actual factors on which they are doing mergers and acquisition.

There are several factors upon which merger and acquisition takes place like HR, lack of capital, IT, lack of expertise, need for globalization and it is not necessary that companies do merger and acquisition on all factors but it depends on companies’ strategies and requirements as well.

But in today’s dynamic environment companies do merger and acquisition for increase their efficiency and effectiveness; companies have increasingly used mergers and acquisitions to change the scope and/or competitive environment of their business.

Other factors which are useful in successful mergers and acquisitions are communication, corporate culture and change for surviving. In this project the researcher will discuss the factors that have impact on before, during and after merger and acquisition.

Researcher will also look into the financial statement of the GSK for the last three years to determine that whether the company grows in its market price per share and price earnings ratio. That is the main indicators that determine the performance of the company.

1.5. Research Questions

What factors encourages firms to adopt mergers and acquisitions as an international business strategy?

What are the other international business expansion strategies available to firm?

What benefits are likely to be gained by the firm, under the international business expansion strategy in mergers and acquisitions?

What factors encouraged GSK to engage in merger and acquisitions?

What are the benefits of M&A?

What are the challenges faced by the firm while engaging in the process of mergers and acquisitions?

What strategies could be implemented to enhance the international business operations?