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Do you own a company?
Have you considered merging with another company to give you more
flexibility, leverage and or market share? If so, The Kingdom of
Hearts can help in one of several ways. First, you may consider
becoming a part of The Kingdom of Hearts family of business for many
reasons. Secondly, you may want us to facilitate the arrangement of
the acquisition of another company or you may want to consider
having The Kingdom of Hearts to analyze, facilitate and negotiate an
acquisition as a intermediary. Either way, you stand to gain should
the transaction be handled properly.
We have the ability
through our network to facilitate the audit, banking, business
validation, negotiation and transfer. Although it was thought to be
at one time that mergers and acquisitions were only for large
companies, more and more smaller companies in an effort to increase
their market share and longevity have considered acquiring other
companies or being acquired by other companies for various reasons
listed.
Advantages of Acquisitions:
These motives are considered to add
shareholder value:
-
Economies of
scale: This refers to the fact that the combined company can
often reduce duplicate departments or operations, lowering the
costs of the company relative to the same revenue stream, thus
increasing profit.
-
Increased
revenue/Increased Market Share: This motive assumes that the
company will be absorbing a major competitor and thus increase
its power (by capturing increased market share) to set prices.
-
Cross selling:
For example, a bank buying a stock broker could then sell its
banking products to the stock broker's customers, while the
broker can sign up the bank's customers for brokerage accounts.
Or, a manufacturer can acquire and sell complementary products.
-
Synergy: Better
use of complementary resources.
-
Taxes: A
profitable company can buy a loss maker to use the target's loss
as their advantage by reducing their tax liability. In the
United States and many other countries, rules are in place to
limit the ability of profitable companies to "shop" for loss
making companies, limiting the tax motive of an acquiring
company.
-
Geographical or
other diversification: This is designed to smooth the earnings
results of a company, which over the long term smoothens the
stock price of a company, giving conservative investors more
confidence in investing in the company. However, this does not
always deliver value to shareholders (see below).
-
Resource
transfer: resources are unevenly distributed across firms
(Barney, 1991) and the interaction of target and acquiring firm
resources can create value through either overcoming information
asymmetry or by combining scarce resources.
-
Increased
Market share, which can increase market power: In an oligopoly
market, increased market share generally allows companies to
raise prices. Note that while this may be in the shareholders'
interest, it often raises antitrust concerns, and may not be in
the public interest.
These motives are considered to not
add shareholder value:
-
Diversification: While this may hedge a company against a
downturn in an individual industry it fails to deliver value,
since it is possible for individual shareholders to achieve the
same hedge by diversifying their portfolios at a much lower cost
than those associated with a merger.
-
Manager's
hubris: manager's overconfidence about expected synergies from
M&A which results in overpayment for the target company.
-
Empire
building: Managers have larger companies to manage and hence
more power.
-
Manager's
compensation: In the past, certain executive management teams
had their payout based on the total amount of profit of the
company, instead of the profit per share, which would give the
team a perverse incentive to buy companies to increase the total
profit while decreasing the profit per share (which hurts the
owners of the company, the shareholders); although some
empirical studies show that compensation is linked to
profitability rather than mere profits of the company.
-
Vertical
integration: Companies acquire part of a supply chain and
benefit from the resources. However this in turn does not add
any value because as one end of the supply chain may receive
product at a cheaper cost the other end now has lower revenue.
In addition, the supplier may find more difficulty in supplying
to competitors of its acquirer because the competition would not
want to support the new conglomerate.
Either way, please feel free to contact us to see how we could
possibly assist you. You will find that your success is our
business.
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