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Merger And Acquisition Analysis

1165 words - 5 pages

The merger and acquisition process requires consideration of not just projected increases in market share or revenues. Prior to the bidding process or consideration of a merger with another company, due diligence is required in areas including accounting, risk management, taxes, and legal areas such as corporate organization, litigation risk, and legal compliance. The following paper will document some the effects these considerations may have when assembling a merger plan and provide examples of their relevance.AccountingThe intent behind mergers and acquisitions is among many things, the enabling of companies to increase their size or market share, recognize cost reduction, improve their access to capital, equipment, labor and industry expertise, which ideally returns increased production levels and revenue. These factors have led many industry participants, both small and large, to discover growth opportunities from both inside and outside of M&A transactions as they work to increase shareholder value ("Mergers and Acquisitions Continue, 2006).Reduction in costs while increasing revenue is a common motivation for embarking on a merger between companies. When two companies merge, the combined revenue does not necessarily mean it will be the sum of what each company had on its own, in fact, in the beginning it will likely be less due to overlap in markets and duplication of jobs. Therefore, lost revenue must be found by accomplishing synergy, resulting in gained cost savings that offset lost revenue (M&A - Mergers and Acquisitions, n.d.). Failure to create synergy between merging companies can often result in a failed merger and loss to stakeholders.Risk management is always a concern for businesses of all sizes, but should be even more carefully monitored prior to, during, and after a merger. Integration of accounting, auditing, and internal controls should be taken both slowly and carefully. In addition, there should be a separation of duties for financial oversight. If not addressed early, confusion and uncertainty of merging operations will likely result in criminal loss from theft, fraud, and abuse (Klein, 2006).TaxesAccording to RSM McGladrey Inc., "....deal-makers should plan mergers and acquisitions very carefully, because unforeseen tax issues can make an otherwise appealing merger much less palatable. According to a recent national survey on M&A activity, 70% of respondents said hidden or unrecorded financial liabilities threatened successful mergers or acquisitions. In that same study, nearly half of respondents cited incomplete tax planning as a significant risk in bringing two companies together."In a taxable merger, a clever buyer would seek to acquire only the assets of a target firm, largely because this is a means of avoiding responsibility for undisclosed tax or financial liabilities while gaining a sizable tax write-off against depreciated assets. Conversely, sellers often want to sell stock because it is a less...

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