Reasons behind Companies Choose Merger and Acquisition

Corporate Accounting
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Contents
INTRODUCTION...........................................................................................................................3
Main Body.......................................................................................................................................3
(a): Reason behind companies choose merger and acquisition..............................................3
(b): Overview of the company taken as acquisition target.....................................................5
(c): Capital structure and WACC...........................................................................................7
(d): Valuation of the target company by using discounted free cash flow method................9
(e): Recommendation...........................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
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INTRODUCTION
Corporate accounting is an essential branch of finance that deal with accounting information
for companies, formulation of their final reports and cash flow statement for specific activities
such as absorption and amalgamation. The primary purpose of corporate accounting is to
maintain proper balance among financial systems of a company. “Vodafone group plc” is a
public listed company which has been taken into account for the corporate restructuring. This
project report aimed at providing specific information about relative merits of cash or equity
funding relation in merger and acquisition (Zadek, Evans and Pruzan, 2013). Apart from this,
justification regarding chosen company by the help of using key financial data is covered
effectively. Along with that calculation of weighted cost of capital and valuation of target
companies by using discounted cash flow method has being discussed properly in this report.
Further this report summary all the analysis by providing reliable recommendation has been
mentioned clearly.
Main Body
(a): Reason behind companies choose merger and acquisition
Corporate restructuring is an essential action which has been taken by companies to
significantly change their structure in order to increase future growth and profitability. The
primary reason behind most of the companies used restructuring is to overcome all their financial
issues or losses from couple of period (Koh, Durand, Dai and Chang, 2015). It seems to be
necessity to analyse financial adjustments to their assets and debts obligations. Basically, it will
be taken into account to reduce cost of manufacturing in an accounting period of time. As a
business proprietor, company can always look for their future growth and earn maximum money
by serving wide range of customer base. Thus, it is essential for an organisation to identify
valuable ways to grow their business operations and do this at a drastic pace (Bhasin, 2013).
It has been seen that M&A is done because of strategic business reasons, but the primary
reasons for any business combination are economic development as a core. Gaining a
competitive benefits or wide market share is another crucial motive behind going of M&A
(Phillips and Zhdanov, 2013). Most of the time company used to decide for merger in order to
earn a better distribution of network for marketing their business products. Merger and
acquisition is one of the valuable options that can help companies without having waited for long
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years regarding their marketing and sales planning to pay-off. In case, company wants to grow
faster, this can be right option for them that would deliver instant outcomes. The basic motive of
organisation in merger and acquisition is to secure a valuable opportunity that could either attain
the aims and objectives of growth. It would also deliver right areas of expansion which will
include to product and services line in the market that is presently not serving by firm. The basic
motivation regarding this recreation is that the resulting combination of items, key people and
current pipeline would allow overall business to operate their business in new market and tends
to provide sufficient amount of option to existing target market. Operating business by using
merger and acquisition doesn’t always free from challenge, but it also results in plenty of new
problems. It consists of regulating a company with total presence in multiple locations as well as
has more complex goods and service portfolio.
There are some other issues that are related to cost reduction objective which can be
associated with the revenue growth opportunities. Keeping all specific challenges in mind,
company go for mergers that diversify their overall business operations in more than one nation.
It can acquire another company which is seemingly unrelated to control implication on specific
performance to increase profitability (Hui, Klasa and Yeung, 2012). There are various essential
reasons to be taken into consideration for going with merger and acquisition. Some of them are
discussed below:
Synergies: By proper combination of business activities, performance would increase and
cost will reduce because of synergies among two legal entities. An organisation will always
attempt to merge with other company that is having complementary strength as well as
weaknesses (Dutordoir, Roosenboom and Vasconcelos, 2014).
Diversification: In most of the cases, companies use merger and acquisition techniques for
diversify their business. It seeks to provide proper shape their aim that is often merges with those
companies which is having deeper market penetration.
Growth: It used to give opportunity to acquire company to nurture market share instead of
having really on doing their work by themselves (Mueller, 2013). Most of the time companies
used to buy a competitive business in accordance to a price. Growth can lead to increase their
market presence and increase future sustainability of the company.
Eliminate competition: Plenty of merger and acquisition deals tend to allow owner to
reduce upcoming competition and try to earn maximum market share from their overall
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