Theever increasing global competition has driven companies to adoptseveral means to maintain or rather heighten their production levels.Investors are demanding more intense mechanisms of improving salesand earnings. Due to this intensity of competition, mergers andacquisitions have been on the rise. A merger entails a combination oftwo or more companies to form one. The acquisition, on the otherhand, involves buying most or all of another company’s stakes totake full control. The two aspects are quite sensitive and sometimesmistakes are made. As a Human Resource professional, I will describesome of the risks involved and how they can be mitigated [ CITATION Sco13 l 1033 ].
Thefour core phases of Merger and Acquisition (M&A) include strategydevelopment, due diligence stage, negotiations and structuring, andintegration execution stage. The litigation risks are present in eachstage though with varying capacities. In the first phase, mergers oracquisitions face valuation, financial, and operating risks. At thesecond stage, companies have to consider the tax, financial and legaldue diligence. The third part mainly involves the legal structure.Continuity of management is another issue if not appropriatelyhandled. The final phase is mostly affected by the price adjustments.As a human resource professional, it is mandatory to predict futureproblems and how they can be handled [ CITATION Ran10 l 1033 ].
Valuationof the companies can pose significant financial losses. For instance,M&A may underestimate or overestimate the value resulting torisks. The target company normally conceals adverse info whileexaggerating the good ones. Bidders, on the other hand, overstatetheir strengths and hide the weaknesses. In the end, the companiesshare distorted or inadequate information resulting in futurefailures. The common valuation risks include equity and debt. Biddersmay end up dealing with massive debts because the target firmconceals the information. As an HR, before merging or acquiring afirm, all these aspects must be clearly established. Apart from that,repercussions must be put in place in case one of the target firmsconceals some vital information [ CITATION Yan09 l 1033 ].
Thefinancial risks can also emanate from valuation issues. It is mostlycaused by the uncertainty of events and may impact negatively to thecompany. Inappropriate evaluation mechanisms can also lead tofinancial problems. The common methods adopted include market valuetechnique, present value of earnings, and replacement cost mechanism.Inadequate assessment methods heighten the risks of future failures.Uncertainty, dynamics, controllability, and comprehensivenesscontribute to the financial variances. Tax risks are also commonissues in M&A. The tax rates may change in due time, thuslimiting the company. All this can be placed under one umbrella ofuncertainty. Variations in the national macroeconomic policies,fluctuations in exchange and interest rates, and cyclical economicvariances.
Theseaspects are uncertain, and a company cannot adequately establish thembefore the merger or acquisition. Prices also tend to fluctuate withtime. Sometimes they may rise of fall [ CITATION Sha12 l 1033 ].A good example is fuels and all the related products. The pricesfluctuate globally and thus affect the respective companies.Therefore, as an HR professional predicting the future issues isvital. Sometimes they cannot be avoided, but the knowledge of theirexistence can assist the company to adapt. In that regard, as the HRI would seek guidance from a private organization to perform accurateanalysis of the target company. Apart from that, the owners of thetarget will provide the necessary information. In addition,consequences of any misinformation will be provided. It will ensurethe company is well protected from future problems related toevaluation.
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Jinan, Y. Y. (2009). The Study of Financial Risk in M&A. International Journal of Business and Management, 70-72.
Kerrigan, S. S. (2012, August 7). Top Ten Issues in M&A Transactions. Retrieved from Morse Barnes-Brown Pendleton: http://www.mbbp.com/news/issues-in-ma-transactions
Scott Meza, M. K. (2013). Merger and Acquisition (M&A) Litigation: Current Issues and Trends. 1-94.