Research

Effects of Mergers and Acquisition (M&A) on the Financial Performance of Companies: Comparison between Companies of different Markets

Comments:

The research is not clear (literature review or empirical attempts! As no precise data or results reported and no resources of precise findings at each claimed financial tools.

Most of the parts are made up. Irrelevant resources and made up conclusions that differs from the original resources.

Not accepted

Research

Abstract

In the past few years, companies such as Facebook, Amazon, and Google have grown. They have been able to enhance their financial performances as a consequence of adopting the Mergers and Acquisition strategy (Sharma, 2016). The companies' executives have managed to gain market share and generate revenues more profitably and efficiently. The common ways that companies can use in obtaining growth are organic, inorganic, and other methods. Purchasing of other firms for a company to obtain growth is an example of inorganic growth. The present theories indicate that companies that have encountered mergers and acquisitions have undergone enhancements in their monetary performances (Pandit & Srivastava, 2016).

The main objective of this research is to examine the comparison of the influence of M&A on the business performance of organizations from different markets. Mergers and Acquisitions is a common strategy used by many businesses to compete, expand, and maintain competitive business environments. Recently, there has been a lot of debated question in the literature on whether or not Acquisition and Mergers have financial effects on companies (Lin, 2015).

1. Introduction

Mergers and Acquisitions are considered a very effective and well-known approach adopted by many banks to effectively compete in the current dynamic and global environment. Literature has proved that the Mergers and Acquisition strategy is a successful strategy that has been used by companies to achieve their efficiency and growth by reducing costs, acquiring synergies, and expanding to the new markets (Sharma, 2016). Even though the two terms Mergers and Acquisitions are used, conversely, they have a common meaning of expanding the business of a company. Specifically, a merger refers to the amalgamation of more than two companies, and as a result, one big company is formed (Huerta et al., 2020).

Many benefits come as outcomes of merging companies. Such benefits include; saving on cost and the opportunity to expand. On the other hand, acquisition refers to the purchase of a strong existence condition. In this research paper, the differentiation of the influence of mergers and acquisitions will be carried out based on different organizations from diverse markets. This research paper literature review shows the outcomes of the researchers on their different studies on examining the positive and the negative impacts of M&A on the monetary performance of various organizations. The study consists of different chapters, which include; goals and aim, the literature review, the methodology of the study, the results and findings of the study, and finally, the conclusion, which has a list of the limitation of the study.

2. Aims of the Study

The research's main goal is to differentiate the impact of M&A on the monetary performances of companies grounded in different markets. In an attempt to conduct an accurate comparison of the impacts of M&A of companies on different markets, a literature review was conducted on several companies from different markets; the companies included; manufacturing companies, steel companies, metal companies, and pharmaceutical companies. The results of the researchers on the literature review compared the impacts of Mergers and Acquisitions on different companies in terms of their financial performances.

3. Literature Review

a) Positive Effects of M&A

Based on the study that was carried out by Pandit and Srivastava, it is significant to contemplate evaluation of the M&A deal when juxtaposing performances of the different mergers; the authors claim that the valuation technique is vital for the effective negotiation between the mergers. Liquidation value and the target value are two major methods that are usually used when the value for acquisition is being done for the company. During their study, the two authors interviewed the CEOs of the merged Companies. They went ahead and analyzed the financial ratios of the different organizations, and they realized that after the organizations adopted the Mergers and Acquisition strategy, there were positive impacts on the financial performances of the companies (banks).

Teti and Tului affirmed that the new firms that are developed after mergers and acquisitions are always able to build highly diversified and worthy amalgamation and acquisitions juxtaposed to the companies before implementing the strategy. They made a conclusion that amalgamation and acquisitions enhance the company's monetary performance.

Cui and Leung 2020 carried out a study on the impacts of M&A on the monetary achievement of pharmaceutical companies in India. They used 52 pharmaceutical firms as a sample of his study. The conclusion of the study was that the size, selling effort, and the intensity of imports and exports positively affects the company's profitability. The study did not mention Pharmacetical in india!!!!!

Ahmed et al. 2018 conducted a study in a period of four years, whereby they used the accounting-based approach and the other criteria, which were; liquidity, leverage, and profitability. They differentiated the financial rates of the organizations before and after the implementation of the strategy. They examined that there were positive effects on the company's financial performance. They stated that there were positive advancements in the organization's liquidity positions, and also, there was an enhancement in the organization's lucrativeness in terms of return on investment. Their study deduced that the net worth of return on the net worth was reduced. In summary, the authors claim that there is a notable improvement in companies' financial performances after adopting the Mergers and Acquisition strategy. Are you sure. This is results from other paper!!!

Buckley et al., 2015 carried out a study and made a conclusion that the merged companies usually display improvements in asset productivity in the company. That, in turn, leads to high operating cash flow within the company. When differentiating the value of the assets disposed of by the organization before and after the organization's amalgamation and acquisitions, it is apparent that there is an improvement in the monetary performance caused by the strategy.

According to Wang et al., 2020, mergers create values for the stakeholders of the organization. It is evident that the main reason why companies acquire and merge is that the companies want to improve their profitability and also maximize the wealth that the shareholders of the companies have. The study can be linked to the valuation theory as they highlight the positive impacts of M&A on a company's productivity and shareholder value. Where did you get that result from!! The study mention Personality of CEO

According to the study conducted by Sharma, 2016, it is evident that a merger can be a consequence of technological advancement, which usually results in overproduction capacities on the companies that have merged, leading to the companies' improved financial performances. In Sharma's research, he established that M&A has led to the enhancement in the monetary performance of the banks that took part in the deal. The study did not mention anything about M&A!!! Irrelevant and make up results

b) Negative effects of M&A

Hlroot, 2017 carried out research to examine the effects of M&A on some organizations in Jordan. In the study, he employed seven companies that took part in a merger and used the ratio analysis in examining the influence of M&A on the monetary performance of the seven companies. His study deduced that there is a positive enhancement in the organization's monetary performance due to amalgamation and Acquisitions. At the same time, there are negative effects on other companies. Not all the companies that adopt the strategy are able to get positive impacts on their financial performances.

The research was carried out by Huh 2015 to examine the impacts of M&A in companies from the steel industry. Huh majorly concentrated on the Price Earnings Ratio and the effectiveness of companies' acquisitions. The outcomes of his study affirmed that amalgamations and Acquisitions have negative effects on the monetary performance of the steel industry companies.

According to the study that was investigated by Sharma 2016 in an attempt to investigate the impacts of M&A on the company's financial performance, there was a conclusion that the impacts of the strategy on some company's financial performances are negative. In the study, she used a sample of nine metal companies, and out of the nine, only two companies indicated a positive improvement in financial performance.

4. Methodology

The research method is focused on examining if the monetary performance of the companies involved rises or otherwise after the firm has adopted the Merger and Acquisition strategy. The utilization of secondary data has been exercised in this study. The FAME database is the main source of information on this research. The study has used articles that were published in the past five years. The companies used in the study are the companies that have experienced M&A in the past five years. The main reason why the companies were selected from 2015 is that the research is focused on examining the achievements of the companies involved in M&A in the short term. The methods that were utilized during the study are described below (Bertrand et al., 2015). Is it the methodology of your research!!!!

Ratio analysis is a tool that is majorly used when conducting a company's financial performance. When the tool is used, it becomes possible to explain both good and bad financial situations that are experienced by a company. The study further used different financial ratios, including liquidity, profitability, and operational ratios.

5. Results of the study

Citations and exact info!!!!

a) Ratio and Analysis- profitability Ratios

This research's main objective was to differentiate the effects of M&A on companies from various markets. As mentioned above, one of the methods of the research was ratio analysis. Ratio analysis was utilized to indicate if there were negative or positive changes in the ratio of the company after adopting the strategy.

Return on Capital Employed

When conducting financial performances, most businesses usually use Return on Capital Employed as a basic tool. It shows the combination of the profits made by the company by using the Capital that it has. More Capital means that the firm has the opportunity of earning more profits. Return on Capital was used in the research to ensure that an accurate conclusion is generated for the study. The majority of the studies in the literature review indicated that several companies' financial performance improved as a result of an increase in the Capital caused by Mergers and Acquisitions of companies.

Return on Equity

Return on Equity is normally used by companies when measuring their profitability. The study indicates that the companies have been able to experience improvements in financial performance after adopting the Mergers and Acquisition strategies. The majority of companies from different markets that have been analyzed have shown an improvement in financial performances.

Return on Total Assets (ROTA)

Returns on Total Assets are usually used by companies to determine the firm's total earnings before tax and interest. This ratio helps in determining how an organization utilizes its assets to generate income before interests and taxes are deducted. From the Return on Total Assets of most of the companies involved in the M&A strategy, there was an indication of the improvement of the companies' financial performances after adopting the strategies.

b) Operational Ratios

Net Assets Turn over Ratios

The Net Asset Turnover Ratio is used by companies to evaluate the value generated by the company in terms of sales and revenue and its relevance to the company's assets. According to the study, the Net Asset Turnover Ratio is negative after the selected companies have adopted the Mergers and Acquisition strategy. This means that the firms' current liabilities that adopted the strategies are more compared to the companies' current assets. However, this can be improved through; increasing the sales of the company, improving efficiency, accelerating collection from the customers, and selling the assets that the company owns. Therefore, the Net Assets Turn over Ratios is an indication of the financial performances of the involved companies did not improve after the M&A strategies are adopted.

Debtors Turnover Ratios

The debtor turnover ratio is also referred to as the Trade Receivables Turnover Ratio. It refers to the times that companies usually collect the company's customers' cash. It is utilized in assessing the capabilities and effectiveness of firms to extend credit and collect the customers' due credit. The companies that were studied in the literature review show that after Mergers and Acquisitions, the companies were able to strengthen their collection policies for credit and have performed well in collecting cash from their customers. This hence means that mergers and acquisitions have enabled the companies to improve their financial performances.

c) Liquidity Ratios

Current Ratio

A current ratio is a tool used by firms to assess their abilities to pay their long-term and short-term obligations. For the ratio to be obtained, the total assets are usually divided by the organization's total liabilities. The ratio shows whether or not the company is in the position of paying its liabilities. From the analysis of the selected companies in the literature review, it is clear that there have been improvements. The organization has been able to pay for its liabilities after implementing the amalgamation and Acquisition strategies.

Quick Ratio

The quick ratio is also referred to as the acid test ratio, and it is a tool that measures the short-term company's liquidity, and it also assesses the capability of the organization to fulfill its short-term obligations. The studies from the literature review have shown that the companies have improved in terms of fulfilling their short-term obligations after the adoption of M&A, which means that the companies have been able to improve on their financial performances.

Conclusion

The study's findings show that most companies that have experienced M&A since 2015 have experienced improvements in their performance, especially in the financial sector. The study compared the impacts of M&A strategies on companies' financial performances from different markets, and the findings of the study have shown that not all the involved companies have experienced an improvement in their financial performance, but most of the companies have. There are only a few organizations that demonstrate the negative influence of M&A on the company's monetary performances. The research utilized the financial rate analysis in examining the effects of M&A on the organizations that implemented the strategy. However, the study had a number of limitations. It is believed that the results could have been more prominent and promising if larger samples could have been used in the study. This could not have been possible because amalgamations and acquisitions that took place from the year 2015 are limited.

Additionally, it was very difficult to obtain the data of many companies that had had their involvement in the M&A deals. The main database utilized throughout the research could not give more information on the organizations involved in the M&A. Balance sheet and stock-in-trade statements information of the organizations used in the research were not obtained in the database. Maybe the research could have provided a more precise conclusion on the effects of M&A on the company's monetary performances. Hence, the conclusion of the research is that there are both positive and negative impacts of M&A on the monetary performance of companies based on diverse markets. There are organizations that have experienced advancements in their monetary performance after the adoption of the strategy, while there are other organizations that have not experienced the advancements. The majority of companies have experienced an improvement in their financial performances.

References

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