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...