Free My Firm’s Acquisition Essay Sample
An acquisition primarily entails the purchase of another business entity devoid of the need to establish a subsidiary or deploy a joint venture. Acquisition is considered as one of the business level strategies deployed to gain access to foreign markets. The primary objective behind mergers and acquisitions is to establish a bigger business entity that integrates two separate firms (Abell, 2001). The significant driving factors that compel companies to engage in M&A include cost-efficiency, increased competitiveness and economies of scale advantages. During acquisition, a firm takes over another business entity by establishing itself as the owner of acquired business entity, with the acquiree retaining its business entity. The process of acquisition is extremely complex, with numerous factors playing an integral role in influencing its success. Research has affirmed that attaining success in mergers and acquisitions is extremely difficult, with numerous studies indicating that 70 percent of acquisitions failed to be successful.
Biotech Corporation is a leading company based in New York that engages in the manufacture of latest medical technology equipments and biological research. Biotech Corporation has been in operation for the more than 40 years, focusing on biological research development in order to manufacture modern medical equipments such as CAT scans, Ultra Sound Machines, Patient Monitors and other necessary medical equipments that are used in enhancing hospital practice. Biotech Corporation engages in the development of efficient and reliable medical equipments based on the latest technologies. For me, as the Chief Executive Officer of Biotech Corporation, the primary focus is to foster company’s growth and success in the medical research and development with the objective of being a leading firm in biotechnology research industry. Recently, an opportunity was made available to acquire Primary Care Radiobiology and Chemotherapy Centre (PCRCC), a relatively large company based in London, UK. PCRCC engages in the provision of specialised medical diagnosis that require the use latest medical technologies to treat ailments such as MRI, CAT scanning, ultrasound scanning and any other form of radiobiological services. The primary focus of PCRCC is to provide complete and considerate care to patients in need with specialized medical diagnosis and treatments.
Institution-Based Issues Likely to Be Encountered
Biotech Corporation is vulnerable to experiencing formal institutional constrain and transitional issues through the acquisition of PCRCC. Institutional constraints issues include relatively slow payment schemes, weak legal protection, increased measures on acquisition of private property or contracts and corruption among others. Acquisition of PCRCC by Biotech Corporation is likely to expand Biotech’s business, which in turn increases bureaucracy (Moeller, Schlingemann, & Stulz, 2003). Multinationals have to follow procedures to acquire private property and contracts. These procedures are facilitated by the increased legal constraints. Misconducts such as corruption are bound to occur because the company will most likely want to evade legislations through bribing of the government official to facilitate their activities (Moeller, Schlingemann, & Stulz, 2003). The government will increase taxes on the company resulting in weak legal protection. Legal protection declines because the government will perceive that Biotech has the capability to safeguard itself.
Market opening and globalization are other issues that Biotech Corporation is likely to face. The acquisition will put the company on the universal healthcare traders. As a global trader, Biotech Corporation needs to take an advantage of the increased market to maximise profits. This is an institution-based issue since the company will have to develop new strategies to meet the global market, which can be a challenge especially with increased competition from other international healthcare providers. Coping up with this challenge implies that the company will have to invest more capital to meet the global demands. Globalization and free trade pose stiff competition that is a challenging issue which can collapse the business.
As a multinational company, Biotech will have to adhere to meet the standards and follow the trends of M&A firms. This is quite challenging due to the changing market conditions revolutionised by technology. The company should employ recent medical technology to be classified as a global healthcare provider. According to Stanley (2001), maintaining high levels of technology is expensive due to the disadvantage of emerging illnesses and obsolete nature of technologies. To meet the needs of the global market, Biotech should have efficient systems, be a key player and earn a larger market share.
Self-interested actions, such as empire-building influenced by unofficial norms and cognitions. Empire-building refers to growing of size and scope of an organization’s influence and power. This can be depicted from asset values increase in terms of dollars without considering forms of benefiting stakeholders. Moreover, managers and staff levels might develop a tendency of initiating business growth measures that aim at expanding Biotech Corporation’s market without the consent of the shareholders. Such norms alienate shareholders from the management of the company and tend to reduce the share of investment.
Resource-Based Issues Likely to Be Encountered
The first resource-based issue likely to be encountered by Biotech is the its emergence of leverage superior managerial capabilities. This is the most essential synergistic issue that leverages superior resources. Biotech might have to pull essential resources by acquiring PCRCC. This increases the Biotech’s resources and ensures survival of PCRCC despite its loss of independence.
Another resource base issue is the easy access to complementary resources. The acquisition of PCRCC firm by Biotech Corporation will lead to the combination of resources from both firms. Complementary resources are assets that can substitute one another through mergers. Biotech and PCRCC are both healthcare traders implying that they share common resources. When small firms and large firms merge, the acquiring firm is bound to obtain complementary resources. Small and large firms typically own complementary resources.
The acquisition of PCRCC provides a learning opportunity to Biotech Corporation. The company acquires PCRCC with its available labour force and technical skills. Medical skills from PCRCC are utilised by Biotech. Additionally, sharing of professional experience among the workforce from both firms is likely to take place, which enhances understanding of new methods of providing service to the global market. This is essential in improving the provision of medical goods and treatment services to the public. Loopholes that were present in Biotech Corporation prior to acquisition are likely to be solved due to the wide range of technical skills.
Managers’ over-confidence in their capability is another issue characterised by mergers and acquisition. Firm acquisition draws two statements. The acquiring firm can better manage the assets of the acquired firm. The acquiring firm is smarter than the acquired firm. These two statements make managers of the acquiring firm feel over-confident in their abilities. Managers’ over-confidence can affect negatively on the management of the acquired firm. Research shows that over-confidence can lead to wrong judgment, which can be detrimental to the firm (Abell, 2001).
There are diverse reasons for mergers and acquisition by firms. From my standpoint as the Chief Executive Officer, Biotech Corporation should acquire PCRCC to diversify risks, develop operating synergy and take over the management of PCRCC.
Acquisition of PCRCC will enable Biotech Corporation to spread its risks over vast and diverse assets. PCRCC offers medical diagnosis using recent technologies, which will be a new service to Biotech upon acquisition. The risks that Biotech are vulnerable to will be shared between the two firms hence reduce the impact of the risks that were initially imposed to Biotech.
Creating a financial or operating synergy is another motive for PCRCC acquisition. This is the widely used reason for acquisitions since it allows firms to raise their operating system and growth. Operating synergies comprises of economies of scale, increased price influence, amalgamation of various functional strength and rapid growth in market share. The amalgamation of Biotech and PCRCC will raises operating capital and eliminates competition.
Biotech Corporation’s motive to acquire PCRCC is to offer effective management by changing the current management strategies. The new policies will make the amalgamated firm effective and will enable Biotech to increase in value of control.
Managerial hubris refers to the unrealistic viewpoint of managers of bidding firms that they have the capability to manage the assets of a target business entity more effectively and efficiently compared to the management of the current target firm. I am prone to managerial hubris since this is one of the primary reasons for Biotech Corporations to acquire PCRCC, which is currently generating low profits.
Ensuring the Success Of the Acquisition
The success of any business severely depends on the management and market. Effective management should play a vital role to ensure the success of Biotech. Management policies that strive to increase and improve productive should be implemented in line with set goals. Such goals should be to acquire a potential market share and be among the best healthcare providers worldwide. Increasing market share can be achieved through investing in other foreign countries. However, Biotech Corp needs to target the Bottom of the Pyramid (BOP) markets since they form a larger market share. This can only be achieved through the provision of affordable medical services. Additionally, extensive research and development activities are fundamental for future healthcare innovations to guarantee success of the amalgamated company.
In conclusion, Biotech Corporation will encounter various issues such as formal institutional constraints, leverage superior capabilities, and learn to develop new skills among others upon acquisition of PCRCC. The main reasons why Biotech wants to seize the opportunity of acquiring PCRCC is to spread and diversify risks, create a financial or operating synergy, and to manage PCRCC effectively. To ensure the success of the combined firm management policies should be implemented to improve services and increase market share.