Mergers and Acquisitions: An Overview Term Paper

Creating an economy of scale can prove difficult, and the new, larger entity can be unwieldy. Again, using stock to finance the deal can be its downfall "a booming stock market encourages mergers...Deals done with highly rated stock as currency are easy and cheap, but the strategic thinking behind them may be easy and cheap too." ("Mergers and Acquisitions: Why They Can Fail," 2006, Investopedia)

Financial risks of merging with or acquiring an organization in another country and how those risks could be mitigated

Globalization," defined as "the arrival of new technological developments or a fast-changing economic landscape that makes the outlook uncertain are all factors that can create a strong incentive for defensive mergers. Sometimes the management team feels they have no choice and must acquire a rival before being acquired. The idea is that only big players will survive a more competitive world." ("Mergers and Acquisitions: Why They Can Fail," 2006, Investopedia) Also, the general trend towards globalization offers an additional incentive to seek to merge with a company with a developed market in an international outpost that the other company wishes to make inroads into -- but there is no guarantee that the corporate culture created by the merger will be equally as successful, or have an equal thumb on the local pulse as the smaller, original company.

Furthermore, local governments can be difficulty to deal with, financing the larger company may be difficult, and a global company is more subject to the uncertainty of worldwide political events. A devalued currency because of fears of internal uprisings, conflicts with government officials, and a clash of corporate cultures, or the culture of the company's home nation and the nation of the firm can all create friction and generate financial losses.

To minimize risk, McKinsey, a global consultancy firm advises companies to take their initial focus off immediate integration and cost-cutting instead stress building stable infrastructure that can weather threats from the external environment. "Merging companies can focus on integration and cost-cutting so much that they neglect day-to-day business, thereby prompting nervous customers to flee. This loss of revenue momentum is one reason so many mergers fail to create value for shareholders." ("Mergers and Acquisitions: Why They Can Fail," 2006, Investopedia) Focus on the long-term, not on the short-term is the surest prescription to weathering the financial difficulties that may accompany a merger or acquisition. Building a stable, new, corporate culture that combines the two nations, and showing sensitivity and tolerance towards the different management and social approaches to doing business is also important.

Works Cited

Mergers and Acquisitions: Definition." 2006). Investopedia. Retrieved 5 Dec 2006 at http://www.investopedia.com/university/mergers/mergers1.asp

Mergers and Acquisitions: Valuation Maters." (2006). Investopedia. Retrieved 5 Dec 2006 at http://www.investopedia.com/university/mergers/mergers2.asp

Mergers and Acquisitions: Why They Can Fail." (2006). Investopedia. Retrieved 5 Dec 2006 at http://www.investopedia.com/university/mergers/mergers5.asp