[Document subtitle]

[Date] [Company name] [Company address]

 
Table of Contents
INTRODUCTION…………………………………………………………...........................2
LITERATURE REVIEW……………………………………………………………………4
METHODOLOGOY…………………………………………………………………………15
REFERENCES……………………………………………………………………………….18

 

INTRODUCTION

Merges and acquisitions is a widely-used strategy. Companies apply it to create value, change the economic market, and internal reconstruction. It can be seen as a complicated, long-term process. However, M&A can be simply classified into a transaction in the private market that bidders and askers have the value of the item and bidders bargain with askers to the price shareholders of targets agree to sell their belonging. Yet this simple classification for M&A, whole process within M&A cannot be easy to disassemble into straightforward operation.
As previous statement, the acquirers would have to search for targets, investigate them, and negotiate with them for the price and payment method. In this stage, information asymmetry is one of the major risk that acquirers should focus on. Because purchasing a firm is expensive and the price is not labelled, gathering all the public information becomes an indispensable preparation. Not only would the price be determined through pre-task investigation, the acquirers would also attempt to understand targets and use public information to construct whole M&A process to eliminate the uncertainty. This means the asymmetric risk would also affect significantly for rest of the M&A process. Therefore, in some complicated deals, both buyers and sellers would consider to hire investment banks as financial advisors to reduce this risk. Financial advisors would help them to gather all the information in short time and interpret the information based on their professional background.
In China, quantity of inland merging and acquisition contracts has risen to about 39% between 2010 to the year 2015 hence becoming an integral tool through which foreign companies enter Chinese market (Dezan Shira & Associates, 2016) Besides that, Chinese foreign merging and acquisition in 2016 rose three times more unlike in the previous year-2015 (PWC, 2017).
However, this approachraises more uncertainty than the national merging and acquisition. International merging is inclusive of risks within the participating countries like diverge cultures, corporate policies and different language. For instance, the language issue China experiences more risks since they are not well versed with English which is widely used (Li et al 2016) It is however beneficial for firms to share the same outsourced auditors since its likely to decrease challenges relevant to internal auditors. (Chricop et al. 20917)
 

LITERATURE REVIEW

 21st century business market has always been depending on merging and acquiring as an integral strategic weapon to achieve thespecific and desired business vision and mission(Sudarsanam, 2003). Merging and acquiring transpires when two or more legally binded businessentities combine to one legally binded entity (Frantlikh, 2003).
Mergers and also acquisitions actions are contemplated to be a vital strategy and commonly usedby businesses that project to achieve both profit and growth (Schweiger et al, 2017). Furthermore, according to the 2016 M&A’s review by Thomson Reuters (2017), worldwide deal making decreases around 16% whereas the number of the deals themselves is increased 1%. Also, M%A’s activity completed around US$3.7 Trillion during 2016. Along similar lines, it was found that energy and power sectors are the most targeted industry by value by accumulating around 16.6% of the total industry following this is the high technology sector which totalled around 13.3%. The least announced targeted industry is telecommunications sector for 3.1%. Industry comparison in worldwide announced M&A’s targeted industry by value can be seen
The prior research implied that acquirers apply the merge and acquisition as an instrument to extant themselves. The Trautwein (1990) provides sevaral motivations that lead M&A to occure. When the targets firms holding some benefits, such as tax advantages or high competitive product, bidders possibly purchase the firms to rubost themselves. It is also proved that acquirers could apply Monopoly theory by horizontal or vertical integration torobust their market position (Mukherjee, et al., 2004). In addition, bidders expect M&A could raise their firm’snet worth, for instance, the national could trigger acquire others to obtain new technologies.The research also proves that the M&A activities could change the structure of industries that an increase in market demand occurs after the activities(Lambrecht, 2013). M&A activities not only active nationally, the cross-border M&A alsocould bring those benefits even more than those.Because of the difference between geographies, foreign buyers could establish new markets which demand has not been met yet.This location different might also diversify risk or reduce the production expense (Bruner, 2004).
M&A is a long-term process, not an event. Starting from strategy building until the action of the integration after deals completed, M&A can be separated as two stages, planning and implementation. Planning stage is about setting aim and objective and later stage is all about searching targets, negotiation, and evaluation that including all the work until the deal completed (DePamphilis, 2010). Once the goal confirms, acquirers begin searching targets to meet the objective, that means searching is the first step in the implementation. This preliminary task is usually mass and complicated.Acquirers collect the public information, including companies background, sectors overview, and financial reports, and analyse whether merging the targets could meet the final goal. Once they choose, bidders would contact with sellers and signs the agreement to share more information, including unpublished financial information and management overview. The preliminary task also called primarily due diligence investigation(Bruner, 2004). Bruner (2004) notes that the due diligence would affect not only during the negotiation but also after the transaction completed. He also reveal that both targets and acquirors should consider cautiously about the defferences between buseinss culture and financial standard. If the transactions is international, the country and culture factors shold including in analysis. After the deal completed, those infromatiton would apply to construct the combination plan.
Bidders valuate and interpret targets base on above information that acquirors could reach, so the qaulity of those information also determine the M&A qaulity. It means the information asymmetry between two parties in M&A transaction is the key factor that brings a high degree of uncertainty. Therefore, the better-quality information, the more benefits acquirers can generate from M&A. This analysis could also bring bidders general idea about how worth the companies are. Knowing better, bidders could alleviate the chance of uncertainty happen. Acquirers could also get the better position to negotiate the price that reduce the premium payment and increase the possibility of success. (Bruner, 2004) (DePamphilis, 2010)The further research also stands that the uncertainty has negative impact on announcement return and the performance after the integration (McNichols & Stubben, 2012).
As previous mention, financial information, including financial statement and other accounting information, is one of the main resource. Within those reports, managers could determine and confirm the targets performance of main stream activity, segments overall, and business model whether these important indicators is consistent with the claim. However, it can be argued that the financial information could also be manipulated (Trussel, 2003)(Roychowdhury, 2003). Furthermore, different firms formalise the reports differently and both bidders and askers might follow different standard rule. In order to eliminate the degree of uncertainty, in some complicated deals, firms would apply investment banks as financial advisors to help both acquirers and targets do the due diligence and communication. The research proves that advisors couldhave a positive effect on the announcement return, especially in the complicated deal.
The finance literature to date is largely lacking theoretical or empirical analysis of howInterim risk could affect aggregate merger activity. I propose that expected costs to eitherParty during the legally mandated interim period (such as renegotiation, litigation, or
Overpayment, to name a few) should imply that higher expected uncertainty would make the
Marginal deal less appealing, thereby have an ex-ante chilling effect on the number of announced mergers. In addition, there is evidence to support the view that the bidder faces extra burdens in altering or reneging on the original terms of the deal. This would imply that a merger agreement resembles a put option given to the target by the bidding firm, further enhancing the negative effect of uncertainty on deal activity.
 
The view of a merger agreement as a target put option originates in the legal literature.
Bainbridge (1990) highlights the risks created by the delay and suggests that the bidder bears
Most of this risk. Fraidin and Hanson (1994) note that the contract in essence gives the target a put option, in that its shareholders have the right but not the obligation to agree to the terms of the deal. Gilson and Schwartz (2005) catalogue the rapid rise in contracts specifically excluding adverse economic and industry outcomes from the material adverse effects (MAE) which would allow the bidder to walk away. Regardless of the contract language, recent Delaware court cases weaken the bidder’s ability to back out of deals, with Somogie (2009)
 
For most of my findings, the degree of symmetry in the interim risk does not matter: ifthe interim risk has costly effects on either party, an increase in the risk should dampen dealactivity. While some of the findings here support the view that the risk is disproportionatelyborne by the bidder (Bhagwat and Dam, 2015), I note that the two views are not mutually
exclusive.
       Although mergers and acquisitions are different conceptually, both have some relevance and dependent on each other. A merger for instance, is a result of the combination of two or more firms with one firm usurping all that pertains to assets, liabilities, responsibilities which comes up as a culmination of the combination in order to legally exist (Gaughan, 1999). Hence, merging is a result of the almagation of firms and forming a new firm after dissolving the old firms (Ross et al, 1998)
  There are a number of diverge forms of M&As according to scope, horizontal and the conglomerate (Gaughan, 1999). The horizontal M&A are those firms that do similar business activities in terms of producing similar products and doing their activities in t6he same market scope. Vertical M&A on the other hand is found where firms operate at different parts of the value chain or the supply chain concerning distribution of products while conglomerate are perceived where firms conduct unrelated business activitiesAccording to (Motis, 2007) vertical mergers is unique in that competition depends on the structure of both the lower5 and upper markets. For instance, when the upper structure markets are a monopoly, then the lower markets would be closed. The business growth through use of M&As is more advantageous in that it allows tremendous growth and faster feedback from the market and reduction in the quantity of the competitors in the market industry
Studies have been conducted in an extensive manner concerning the M&A both domestically and on an international perception. Majority of these research have focused on the effect before and after acquisition on the performance of the several firms involved. For instance, some positive results were perceived in form of the profits, liquidity levels and the leverage of the acquiring firms. As well as on performance (Hitt et al 2004). On the contrary, most of the studies have however revealed that the M&A have been very detrimental in downplaying their performances (Cartwright & Schoenberg, 2006). It is quite factual that acquisitions have more of negative than a positive impact on aspects such as poor choices of targets, performances inefficient information on synergies, poor integration of theacquired firm (Hitt et al., 2001) A lot of debt also is realized as result of the acquisition (Haspeslagh & Jemison; Hitt et al., 2001). Nonetheless, M&As poses many opportunities to be capitalized on by firms by reconfiguring on how to maximise their resources (Karim & Mitchell, 2000).
       Firms participate in M&A for various reasons. One of the main reasons why firms do so according to (Song and Pettit (2000) is to exploitthe opportunities betweenthe distribution chain of the companiesinvolved. These opportunities may come into existence for various reasons.According to(Scherer and Ross 1990) these reasons may be due to as a firm operating as a monopoly industry which cokes with its own economies of scale (Porter,1985), and to also reduce competition posed by the competitors (Bradley et al., 1988), lower the dependency on certain number of fixed consumers (Chatterjee, 1986) or to raise prices for the consumers (Hitt,Hoskisson& Ireland, 1990), achieve efficiency by reducing costs and take advantage of participation in large markets (Homburg &Bucerius, 2006) or by aneffective combination of resources (Chatterjee &Lubatkin, 1990). Brouthers and Brouthers (2000) M&As are seen to be routes of overcoming disadvantagesof market finance and cost reduction of capital. (Chatterjee &Lubatkin1990) and Cartwright and Cooper (1999) ventured into M&As perceived as a method to restructure inefficiently managed companies realizing difficulties(Barney, 1991) and also suggested that the M&As are usedfor controllingvaluable resources to achieve an advantageouscompetition. Additional value got from maximising on opportunities would be greater and increasing power market (Singh &Montgomery, 1987; Seth, 1990).
On the theoretical perception,the focus is highlighted based on resources and views based on knowledge (Grant, 1991) when doing research about M&As. Facts aboutM&As have transformed to new works based on diversification of thestrategies (Chandler, 1962; Rumelt, 1974) to the current focus on magnifying howM&As are advantageous for the firms (Barney, 1988; Capron, Dussauge& Mitchell, 1998; Larsson& Finkelstein, 1999; Lubatkin, 1983; Vermeulen &Barkema, 2001). This transformation has projected the emphasis to external or environmental perception, ultimatelyanalysingrigorously the industry (Porter, 1980) or strategic teams (Porter, 1985; Teece, Pisano &Shuen, 1997)
M&As seems to be mechanisms used to access some of the critical resources, which raises the firms’ power in comparison to other firms and also helpto lower uncertain competition formed by dependency on resourcesamongst various firms. Collaboration of various firm’sresources which are complimentary between the firm acquired and the target may seem to bedifficult (Teece, Pisano &Shuen, 1997). M&As are alsocontemplated as opportunities (Kogut, 1988; Hamel, 1991;Barkema& Vermeulen, 1998; Vermeulen &Barkema, 2001). Firms derive and escalate their knowledge by acquiring (Cohen &Levinthal, 1989; Huber, 1991) anddefinitely, acquiring the expertise or the technicalknow-how and developing and maximising the capabilitiesare very integral for M&As (Link, 1988; Chakrabarti, Hauschildt&Suverkrup, 1994; Wysocki, 1997a, 1997b). The urge to learn new tactics from other developed firms and exploit into the full potential their resources is the reason why firms merge(Amburgey& Miner, 1992).
Background history of M&A has been through six stages
1) 1893-1904: This was the initial stage and was characterized by several horizontal collaborations which formed the various sectors such as mining, steel industry, oil mining and refinery, telecommunication, and railway transport major stakeholders hence depicting basic manufacturing, processing and transportation industrial sectors in US.  It was ended and swept away by embracement of laws known as antitrust in during the start of the 20^thcentury (Lipton 2006)
2) 1919-1929: The next stage was a depiction of collaboration like the first stage showing vertical collaboration.  Majority of the large vehicle manufacturing companies such as Ford, were brought into inception in this period.  Its tenure did not last long as the great market stock which crashed in 1929 ended its reign.(Lipton 2006)
3) 1955-1969: the third stage period, capitalized on the concept of conglomerate. This concept actually filled up or was entirely used by American firms. For instance, the major conglomerates which includes LTV, famous Teledyne and the impeccable Litton were established and took root(Lipton 2006). The major stakeholders of such firms and the top management were perceived as heroes of the then emergent organizational structure. However, there was a decline in their stock in 1969 to 1970 which orchestrated its end.
4) 1980-1989: was predominantly in the USA, where the merger wave was attributed by majority of hostile changeover battle, invention of poisonous pill, junk rise and leveraged buyouts. On the other side of Europe, international horizontal collaborations were undertaken as a stepping stone or paving way for the uniting common market. The efforts of the 1987 market crash could even in a single manner be a saviour to this merger(Lipton 2006).
5) 1993-2000: The fifth collaboration or merger occurred at this period and was attributed by  competition being globalized andwith stock prices shooting high ultimately pressuring on the managers to make have deals which would bail them out. Almagation of unmatching entities were formed, that included combinations such as Exxon and Mobil, Citibank bank and Travelers agencies are just but a sample of the many of the mergers that emerged. (Lipton 2006)
6) 2003-2007: The sixth collaboration entitywas attributed by corporation in metals, crude oil, telecommunication, banking sectors and the health.(Lipton 2006) This period wastriggered due to globalization encouraged by particulargovernments for example, France and Italy and alsoRussia which are amongst the super power countries in the world. On the other hand, the private sector also played avital role by accounting for almost a quarter of the total activity. This was supported and triggered by the availability of credit which were cost effective due to lower interest’s rates. (Alexandridis et al, 2012).
       Mergers and Acquisition entails mainly three stages; - planning, implementation and the post integration. Planning for instance entails is the phase in which the whole strategy is drawn by stating the desired goals and objectives and also how to achieve them. Also entails formulating strategies in a more broader manner which are more organizational than departmental. On the other hand, implementation is where the actual plans are implemented or put into actions until something tangible is realized whileintegration involves matching or putting together the various components and letting them work together to accomplish the organizational objectives and goals by maximising on the opportunities available. formation of opportunities is very crucial in that it leads to M&A.
Integration in its nature is the ideal source of the net worth or value formation in acquisitions (Haspeslagh & Jemison, 1991). Value is only formed when thepotentials are transferred, and the people from each of the organisationscorporate toform and the desired merits and the uncertain opportunities. This corporationdepends entirely on will and the managers ability of both companies to work hand in hand with the same vision and mission. The main determinant to achieving collaboration is to get all the people and employees to participate in order to be in the same direction since they are the one that deal with the actual implementation (Salama et al, 2003).
During integration stage, the aspects that were being integrated will be accounting and finance, legal platform, assets and products, systems and technologies, and most importantly cultures and mind sets.
Most known collaboration phases were mainly segmented into three phases. The first being to run business department in the same building, which were used for different business purposes that run parallelly. In this phase and stage, preservation of corporate values was very paramount. The following phase had to deal with integrating operations and also business activities. This phase of integration is the phase where business opportunities started to be perceived. And the finalphase is tochange to a newfirm, where valuable opportunitieswere easily formed (Bohlin et al., 2009). According to (Sherman and Rupert 2006) concerning banking after the integration’s benefits which are affiliated to integration were not immediately after integration until after a period of about four years and after implementation of a fully and efficient collaboration hence creating the desired and expected opportunities. On the other hand, challenges would fail to be realised and they have to be proactively and tactically dealt with in order to attain the desired outcome. Many of the most known collaboration fails due to improper integration process which poses a big challenge to the participating firms
       Most occasionally integration and acquisition transpires when a firm acquires all the essential and vital financial activities of another firm and the acquired firm succumb to the business activities of the acquiring firm. But this scenario has been under scrutiny on its credibility and workability. Haspeslagh and Jemison (1990) ascertained some metrics to help in choosing the best approach for the implementation approach with two factors to be contemplated:

....................

....................

....................