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Expanding horizons : the importance of due diligence and the art of successful mergers and acquisitions / Rodney J. Pergolski.

by Pergolski, Rodney J.

Consolidation and merger of corporations

International business enterprises

Strategic alliances (Business)

139 leaves : ill. ; 29 cm.

Thesis advisor(s): Gene Wright.

Committee members: Terry Hoffman, Dr. Bruce Thompson

Introduction -- Consolidation options -- Acquisitions -- Mergers -- Joint ventures -- Best cross-border consolidation option -- Why mergers, acquisitions or joint ventures fail -- Location, location, location -- Due diligence -- Successfully completing an acquisition.

The worldwide marketplace steadily becomes a more complicated and competitive arena for companies to participate in. In an effort to be more competitive, firms must develop new and innovative practices to improve costs, quality, speed of delivery, or throughput, and responsiveness to the customers' needs. As simple as that sounds, it becomes more and more difficult to be different from the rest when literally everyone is doing many of the same things to improve their market position.

In certain cases, some companies are just not in a position to be able to compete on their own without some sort of external help. When no more answers can be found within the framework of the company as it exists, the answer must lie within another. This is what leads companies to consider the possibility of merging with or acquiring another.

Regardless of the consolidation option chosen, the end result is to create synergy that makes the value of the combined companies greater than the sum of the two parts. This synergy exists when the value created by business units working together exceeds the value those same units create working independently. The first hurdle is determining which variety of consolidation is the best for the interested company in its specific industry. Management must understand what varieties exist and what makes any one of them a better option than the others. A merger is a strategy through which two firms agree to integrate their operations on a relative co-equal basis. An acquisiton is the strategy employed through which one firm buys controlling interest in another firm making it a subsidiary business within the parent company's portfolio. A joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

When trying to meld two separate and distinct companies into one cohesive unit, the odds tend to be stacked against a successful union. A variety of factors account for these failures, such as buying the wrong company, paying the wrong price or buying at the wrong time. The most important tool neglected too often, however, is due diligence. Due diligence is the act of fully evaluating the target firm from all aspects and understanding the market in which the acquisition is taking place and should cover a variety of disciplines including: strategic, tax, legal, intellectual property, environmental, operational, finance and accounting, and people and culture due diligence.

In an attempt to guarantee a successful due diligence process, certain individuals or teams must be involved. In addition to the due diligence team leader, the short list of team members should include a strategic development engineer, a specialist or two in operations management, legal advisors, tax consultants and human resource experts. Many electronic tools currently exist to support these important due diligence efforts along with the tried and true old-fashioned legwork, interviews, and other data-gathering methods.

In this ever changing world of commerce, mergers and acquisitions will continue to be the opportunity of choice for many companies across the globe. Although inclined to failure due to ignorance or inexperience, the odds of success can be increased dramatically through the careful and relentless use of due diligence. Although it is not an inexpensive endeavor, due diligence can ultimately result in successfully avoiding failure of the acquisition, which would exceed the cost of the due diligence many times over.

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