Paper Example on Cross-Border Mergers and Acquisitions

Introduction

There has been a significant increase in the level of cross-border mergers and acquisitions over the past decade. There is a wide range of factor that contributes to these aspects. Most noteworthy, these factors are classified into two broad sections. It can be a result of external factors including the degree of competition, economic growth, political environment and cultural environment (Du and Boateng, 2015, 432). In the second place, it can be due to the aptitude of the procuring company and availability of resources. However, this document focuses the aspect from strategic as well as financial perspective.

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Strategic and Financial Perspective Why There Is Increase in Cross-Border Mergers and Acquisitions

To begin with, capital reallocation between the acquiring and merger firms is one of the main reasons for this significant increase. Capital allocation can either be achieved through the sale of plant, property or even some of the equipment. The acquiring company assets and those of the targeted company are registered with dual distinct countries. The level of cross-border mergers and acquisition increased because purchases boost the economies of scale of the two countries. In case of alteration in market structure, there is a noteworthy rise in profits margins as well as firm's competitive position (HumpheryJenner et al., 2017, 1688). The idea of capital relocation is correlated to the rapid economic rise in the case of European economic integration.

Profitability is another major driver towards the great achievement in merger and acquisition sector. The market capitalization is the best example that explains the variability of cross-border mergers and acquisition particularly in terms of manufacturing as well as services. Based on Q theory, if the book value of the firm over its market value is less by 1, then the intangibles such as growth potential, reputation, brand, and knowledge do exists within the acquiring and the merged companies (HumpheryJenner et al., 2017, 1696). Consequently, the company's stock increases leading to higher profits. This is what the business analyst, as well as shareholder; opt for the company's progress.

Most noteworthy, the aspect of corporate taxation as per the government policies impacts the development of merger and acquisition in a positive way. A decrease of 10 percent in actual average company taxes between the acquiring and the target countries increases the manufacturing equity outflows by approximately 68 percent in the same firm (HumpheryJenner et al., 2017, 1689). For this reason, corporate taxes are the best tool to fascinate the foreign capital investors, especially in European nations.

Challenges Cross-Border Mergers/Acquisitions Pose in Achieving Success

Even though Cross-Border merger and acquisition play a critical role towards the economic growth of the target countries, there exist some challenges it poses to achieving success. In the first place, postponements as a result of legal as well as regulatory clearance are a common problem with cross-border acquisition and mergers. Approval from the target and home countries is essential. For example, South African corporations are pursuing an investment in outside South Africa. These countries are mostly drawn out because they need to seek Reserve Bank approval which might be hard for them (Deng and Yang, 2015, 157).

Additionally, Integration Challenges is a major threat towards success in given country. For example, research shows that one in every four workers particularly in America has been adversely affected by the process of merging and acquisition (Du and Boateng, 2015, 430). In general, workers demonstrate resilient negative reactions upon the declaration of the merger. Also, merger and acquisition that encompasses two computer companies dreaded layoff, relocation, identity loss as well as control loss.

Work Lists

Deng, P. and Yang, M., 2015. Cross-border mergers and acquisitions by emerging market firms: A comparative investigation. International Business Review, 24(1), pp.157-172.

Du, M. and Boateng, A., 2015. State ownership, institutional effects and value creation in cross-border mergers & acquisitions by Chinese firms. International Business Review, 24(3), pp.430-442.

HumpheryJenner, M., Sautner, Z. and Suchard, J.A., 2017. Crossborder mergers and acquisitions: The role of private equity firms. Strategic Management Journal, 38(8), pp.1688-1700.