Deliverable 7 - JBH Project Plan Deliverable 7 - JBH Project Plan

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Risk Mitigation Plan

Brooklyn Maasch

Rasmussen College

11/4/2021

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Risk Mitigation Plan

The risk mitigation planning work in developing options and actions to enhance opportunities and reduce threats in the acquisition project. The risk mitigation is an iterative process which uses risk tracking tool to observe the results of risks prioritization analysis. This is useful in risk mitigation and risk impact assessment. This involves risk identification where the risks involved and their relationship are defined. Risk impact assessment where the probabilities and consequence of the risk events are assessed. These include cost, schedule, technical performance impact as well as capability or functionality impact. Risk prioritization involves decision analytic rules applied to rank order identified risks events from most to least critical.

The acquisition process is accompanied by several risks which must be timely addressed to avoid the process being a failure. The most common risk and the one likely to first happen is the risk of overpaying for the target company. This affects the shareholders’ value as stated by Chui, (2011). This results from poor valuation of the target company. The next risk is overestimating synergies. These are the main reason for acquisition. The manager sees the synergies that they will gain when the deal goes well such as scale, scope, best practice, shared distribution, intellectual property and opportunities. In case of poor evaluation, the company does not achieve its target even after acquiring the competitor company. The risk of due diligence practices where the teams involved fail to be prepared enough and also lack the diligence experience and expertise required. This results in poor valuation, increased risks and misdirected decision making.

The integration shortfalls risk. This covers post-acquisition integration which covers internal management audits, integration of sales forces. These is accompanied by various issues such as employee disenchantment, failure to capture synergies and the loss of value. lack of communication and transparency is a likely risk during acquisition. Teams working in silos serves to hinder deals of all sizes. These are all as a result of the different teams not being transparent to each other and communicating. The risk of threat to security during acquisition is also common. The threat to security hurts both the company buying and the company being acquired. There is also the risk of unexpected costs associated with the acquisition project. This cost can overwhelm a deal which increases the cost.

Several ways have been developed for risk mitigations which include risk avoidance, risk sharing, risk reduction and risk transfer. The different risks that existing in the acquisition process will be mitigated differently using the mitigation ways developed.

Risk avoidance will be done in a way to eliminating exposing the company to any risk. Hiring a competent acquisition manager and having a competent team in legal and business matters will assist in identifying all the risky sections of the process and developing ways to avoid them. Risk sharing also known as risk distribution means distributing the risks involved with a insurance company. This means that the company does not carry all the risks involved. The company can hire a private company to assist in the transfer process where the risks will be shared between the two companies. Risk transfer will involve fully mandating a company with the acquisition process where it will bare all the risks involved in the transfer process. An insurance company can also be hired which will compensate for any loss incurred. Risk reduction involves reducing the financial

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consequence of a loss. This include reducing the severity of the loss, its frequency by making it less likely to occur

Risk assessment

Likelihood probabilities

0- Not likely to happen 1- Low chances of happening 2- Increased chances of happening 3- Likely to happen 4- High chances of happening

Risk Likelihood Impact on the project

Risk control measures

Risks mitigations

Overpaying for the target company

3 The company is not able to attain the targeted achievements

Risk avoidance The company should develop an overall strategy and goals for the acquisition project. This is followed by a comprehensive valuation report. This covers tax return, key financials for the last five years.

Overestimating synergies

2 The company does not benefit from the acquisition

Risk reduction The company should be conservative when estimating synergies. After identifying the synergies, the company should divide by two so as to be conservative.

Weak due diligence practice

1 The acquisition process is not properly done and may incur extra cost

Risk avoidance The diligence process should begin early enough and the company should hire competent people to conduct the process. This includes experts in business, legal and financial matters.

Integration shortfalls

2 The business is likely to fail

Risk reduction The members of the diligence team should be part of the integration team. This creates continuity in the process and streamlines the activities. The integration

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team should be skillful and with project management skills.

Little attention to culture and change management

2 The business is likely to fail

Risk reduction The company should have information about the competitor to be acquired on time (Lodorfos & Boateng, 2006). This can be obtained through observations, site visits and study of the management style and workflows.

Lack of communication and transparency

1 The company does not seizure all the available opportunities

Risk reduction Communication and transparency can be enhanced through technology such as virtual data room which makes sharing of information easier and efficient.

Threats to security

1 Data loss by the company. Extra cost in securing the data

Risk avoidance This can be mitigated by use of virtual data rooms when sharing and reviewing confidential information as explained by Asimakopoulos & Athanasoglou, (2013).

Unexpected costs associated with the acquisition

3 The cost of acquisition going higher than expected

Risk sharing/transfer

This can be eliminated by early planning and estimation for all the activities to be involved in the acquisition process.

Unforeseen market disruption or external factors

1 The business to do not pick as expected

Risk sharing/transfer

This can be mitigated by conducting a SWOT analysis for the company being acquired and for the KBL.

References

Asimakopoulos, I., & Athanasoglou, P. P. (2013). Revisiting the merger and acquisition performance of European banks. International review of financial analysis, 29, 237-249.

Chui, B. S. (2011). A risk management model for merger and acquisition. International Journal of Engineering Business Management, 3, 11.

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Lodorfos, G., & Boateng, A. (2006). The role of culture in the merger and acquisition process: Evidence from the European chemical industry. Management decision.