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Impact of Mergers and Acquisition | Chinese E-Commerce

   

Added on  2019-11-20

33 Pages7974 Words191 Views
Running head:MERGERS AND ACQUISITIONImpact of Mergers and Acquisition on Values of Chinese E-Commence FirmsName of the Student:Name of the University:Author’s Note:

1MERGERS AND ACQUISITIONTable of Contents1.0 Chapter 1: Introduction..............................................................................................................31.1 Chapter Introduction..................................................................................................................31.2 Background to the Study...........................................................................................................31.2.1 Research Problem...............................................................................................................31.2.2 Research Purpose................................................................................................................41.2.3 Research Significance.........................................................................................................41.3 Research Aims Objectives.........................................................................................................51.3.1 Research Aim......................................................................................................................5Chapter 2: Literature Review...........................................................................................................62.1 Introduction................................................................................................................................62.2 Concept of Mergers and Acquisition (M&A)............................................................................62.3 Background of Global E-commence Industry...........................................................................72.4 Background of Chinese E-commence Industry.......................................................................102.5 Economic Value Associated with Mergers and Acquisition...................................................132.6 Adoption of Merger and Acquisition in Global Industries......................................................152.7 Merger and Acquisition in Chinese Ecommerce Industries....................................................152.8 Impact of Mergers and Acquisition on Business Values of E-commence Industry................172.8.1 Successful Cross-border Market Entry.............................................................................172.8.2 Research and Development...............................................................................................172.8.3 Achievement of Administrative Benefits..........................................................................172.8.4 Enhanced Market Share....................................................................................................182.8.5 Optimization of Operational Cost.....................................................................................182.8.6 Financial Leverage............................................................................................................192.8.7 Share Technology and Computing....................................................................................19

2MERGERS AND ACQUISITION2.9 Issues Associated with Mergers and Acquisition................................................................202.9.1 Ignorance of Crucial Business Points...............................................................................202.9.2 Lack of Common Vision...................................................................................................202.9.3 Team Resourcing..............................................................................................................202.9.4 Poor Governance...............................................................................................................212.9.5 Hidden Cost in Merger and Acquisition...........................................................................212.9.6 Poor Communication........................................................................................................222.10 Effective Ways to Improve Merger and Acquisition in E-commerce Industry.....................222.10.1 Detailed Due Diligence...................................................................................................222.10.2 Careful Integration of Planning.......................................................................................222.10.3 Clear Communication.....................................................................................................232.10.4 Prompt Action.................................................................................................................232.10.5 Right Consideration of M&A Candidates.......................................................................232.10.6 Commit to One Culture...................................................................................................242.10.7 Consistent Monitoring Business Performance................................................................242.11 Gap of Literature....................................................................................................................242.12 Conceptual Framework..........................................................................................................262.13 Summary................................................................................................................................27Reference List................................................................................................................................28

3MERGERS AND ACQUISITION1.0 Chapter 1: Introduction1.1 Chapter IntroductionRapid expansion of corporate firms has led to the market entry mode strategy such asMerger and Acquisition (M&A) to be the most suitable for enhancing business value (Greve andZhang 2017). The motive of resource optimization and sheer sizing has been mostly successfulthrough M&A. The Chinese E-commerce industry is rapidly growing and in order to compete,firms are intended to merge or acquire with smaller rapidly growing overseas companies so thatboth branding and resource management are justified. Therefore, focusing on such M&Astrategies this research will analyze the Chinese E-commerce industry business value creationthrough selecting some merged companies. The analysis will be done through Event StudyTechnique and Accounting Research Method.1.2 Background to the Study1.2.1 Research ProblemShared value, integrated resource management, accelerated market growth, inventorymanagement and asset maintenance have been the most common reasons for merger andacquisition. However, Zhanget al. (2015) pointed out that the after-effect of merger andacquisition is often found to be disheartening especially while reviewing the annual Return onEquity (ROE). On the other hand, Chang, Chang and Wang(2014) highlighted thatReturn onAsset (ROA)is hardly found to be beneficial while comparing with historical data and proposedoutcome. Furthermore, while considering the viewpoint of Kansal and Chandani (2014),Returnon Investment (ROI) is found to be quite less than as expected or proposed before merger.Similarly, E-commerce platform is nowhere different from resource management and value

4MERGERS AND ACQUISITIONcreation. Therefore, keeping such problem on primary focus, this research will discuss the impactof merger and acquisition on value creation especially for Chinese E-commerce firms.1.2.2 Research PurposeThis research will help in quantifying the data that actually indicates the value achievedby E-commerce Chinese firms through Merger and Acquisition (M&A). Earlier it has been foundthat ROA, ROE and ROI are the most visible data that can be quantified while analyzing theperformance of firms. Therefore, this research will collect data from E-commerce companies thathas undergone M&A already. The main purpose will be to analyze the current available financialdata of firms through accounting research method, which will eventually deal with reflecting andcomparing the return on asset and investment before and after M&A.1.2.3 Research SignificanceAccording to Reddyet al. (2016), merger and acquisition not only helps in strengtheningbusiness value, but also helps in resource management for sustainable growth. E-commerceindustries are completely based on technologies that comprise of real-time data sharing andstorage, SSL secured transaction, client data encryption and real-time inventory management.Therefore, much of the resources are consumed in-house by human resource and assets thatframework server and cloud database. Fluctuations and deviations after M&A impacts mostly onshareholders, suppliers, partners and investors. Both corporate governance and organizationalstructure gets impacted, which ultimately reflects on return on investment. Therefore, thisresearch is significant in analyzing the impact on business value specifically in financial aspectsdue to M&A.

5MERGERS AND ACQUISITION1.3 Research Aims Objectives1.3.1 Research AimThe aim of the research is to identify and analyze the impact of merger and acquisition oncreating value for Chinese E-commence Firms.1.3.2 Research Objectives1.Research Objective 1:To identify the impact of merger and acquisition on businessvalue across globe2.Research Objective 2:To analyze the merger and acquisition activity between Chinesefirms that acquired foreign (non-Chinese) firms1.4 Research Questions1.Research Question 1:What is the impact of merger and acquisition on E-commerceindustry?2.Research Question 2:What is the value oriented performance achieved through mergerand acquisitionbetween Chinese firms that acquired foreign (non-Chinese) firms?

6MERGERS AND ACQUISITIONChapter 2: Literature Review2.1 IntroductionThe literature review chapter will discuss the concepts and theories related with mergerand acquisition. The review will discuss and present the global merger and acquisition facts of E-commerce industry and then highlight the Chinese E-commerce market. Different facts,examples and issues of M&A will be discussed for E-commerce industry. Since the main aim ofthe research is to analyze firm’s value, therefore more concentration will be on the factors thatresults in enhancing value of E-commerce organizations. Also, issues faced by organizationsthrough M&A will be discussed and conceptual framework will be presented at the end. Theentire literature review will be presented by collecting facts from articles, peer reviewed journals,books and websites, online library sources. All credible information will be supported bycontribution from various authors from empirical articles.2.2 Concept of Mergers and Acquisition (M&A)Merger and Acquisition defines the areas of corporate finance, management and strategy,which deal with purchasing and/or joining with other organization. It can also refer to theconsolidation of organizations or assets. M&A incorporates wide range of various transactionslike merger, acquisition, tender offer, consolidation, management of acquisition and purchase ofassets. According to Lee, Chen and Guy(2014), in merger, one organization purchases anotherorganization of approximately similar sizes. Moreover, these two companies become one andoperate their business together. Moreover, the two companies take decision to merge with eachother, when they believe that they can achieve something together, which they cannot achieve bytheir own. On the other hand, Amin Noordinet al. (2015) opined that Merger and Acquisition

7MERGERS AND ACQUISITIONdefine the transactions, where the ownership of the organizations or their operating units areeither transferred or combined. In horizontal merger, two rival organizations share same productlines and gain mutual benefits from the stability of the products. On the other hand, Krishnan andMasulis(2013) opined that under vertical merger, two organizations deal with separate businesslines for gaining mutual benefits. Furthermore, Kato and Schoenberg(2014) opined that inconglomerate merger, two organizations with diverse business line in regards to products,marketing and management tend to get unified for new product or management. Moreover, undermerger, two or more companies integrate into single outfit for achieving common businessobjectives. According to Yang, Wei and Chiang(2014), acquisition is the process in which onecompany acquires control over another company called target company. An organization is saidto be acquired company, when one other company buys that company. In case of hostileacquisition, the organization, which is about to be bough, has no information regarding theacquisition. On the other hand, in case of friendly acquisition, two companies engaged inacquisition cooperate with each other and settle the matterin regards to acquisition. The acquiringcompany gains majority stake in the acquired firm, which never changes its name or legalstructure. Moreover, in acquisition, acquiring company take ownership of acquired company’sequity interest, stock and assets. Organizations are more likely to gain economies of scale,efficiencies and enhanced market visibility. It can also lead to greater diversification for highergrowth of products or markets.2.3 Background of Global E-commence IndustryDurand(2016) pointed out that global e-commerce market has been worth around $22.1trillion. The sales growth of global e-commerce sector is up by 6% from the previous year. E-

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