Abstract
Mergers and acquisitions (M&A) are an internationally adopted expansion strategy, but not every case can be successfully executed nor achieved the intended post-expansion results. Most studies focus on M&A wave or post-M&A integration, yet this article focuses on pre-M&A analysis and planning. An M&A evaluation and prioritization model (MAEPM) is proposed to assist decision makers in a more objective and effective manner so that to implement and execute each M&A deal with the aim of maximizing the success rate rather than any other irrelevant reasons. Risk analysis, fuzzy critical path analysis, cost–benefit evaluation, as well as decision rule and prioritization were developed and integrated, which provide insight into M&A evaluation and serve as indicators. Eleven case studies were conducted to verify the MAEPM and the results generated from the MAEPM were compared with the actual results that confirmed the MAEPM is significant and plausible. The novel MAEPM is confirmed to be reliable that enables firms to select the most winning M&A deal(s) to be made according to the availability of resources and capital and thus enhance the success rate of M&A.
Highlights
Mergers and acquisitions (M&A) have been widespread in the global regime and have emerged as crucial corporate strategies and important financial investment decision for rapid business growth and development in the recent decade.[1,2] M&A are the combination of the assets and liabilities of two companies to form a single but larger business entity, which could be similar sized as merging or a larger or more resourceful firm absorbs a smaller or weaker one as acquiring.Owing to the influence of globalization and economic integration, businesses nowadays are exposed to a great deal of uncertainty and riskiness from both the internal competition and external threats
With the support of the discussions in the first and second sections, it is confirmed that pre-M&A analysis, as a vital and primary action in the very early stage of M&A process, could steer M&A deals toward success; failing to assess risk associated with M&A deals could cause M&A failure; doing M&A deals at critical time can reduce uncertainties associated with M&A deals and take full advantage of potential benefits of the M&A opportunities
A consensus on the decision rule was reached that IF the time required completing an M&A deal is less than 180 days, a risk-bearing budget percentage is smaller than 18%, and adjusted rate of return (ARR) is greater than 25%, the M&A deal is worth of investment and recommended to be undertaken
Summary
Mergers and acquisitions (M&A) have been widespread in the global regime and have emerged as crucial corporate strategies and important financial investment decision for rapid business growth and development in the recent decade.[1,2] M&A are the combination of the assets and liabilities of two companies to form a single but larger business entity, which could be similar sized as merging or a larger or more resourceful firm absorbs a smaller or weaker one as acquiring. There are four major challenges faced by many companies while doing M&S businesses, including limited research attention paid to pre-M&A analysis, inadequate emphasis on risk aspect in M&A,6,7 lack of preparation for M&A critical time,[7] and lack of rational tools for M&S analysis to manage deals.[8,9,10,11]. As CEOs are often rewarded through M&A to increase their power over a larger firm, some CEOs may take over another firm in order to show their ability or eliminate their enemies and hated persons From another point of view, the needs of M&A are classified into three major drivers, including resource-driven, marketdriven, and risk-driven.[13]. Excess cash flows were used for the transaction costs in the M&A deals, managerial entrenchment (by which managers make deals to increase their value and power to shareholders but not shareholder value itself), and managerial hubris or ego (that managers are overconfidence to make decisions on the deals).[22,25,26]
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