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Project Management Services

To grow or enhance the value of your business, there are numerous options that can be explored. You could consider acquiring or merging with another business, or, on the flip side, spin off or divest parts of your business. This is where ACH can bring its wealth and depth of experience to advise on the best course of action.

The fundamental guiding principle behind any acquisition or merger is that it creates shareholder value, i.e. The sum of the parts is worth more than the whole. The objective underlying an acquisition or merger may be to increase market share, generate greater cost efficiencies through economies of scale, extend your business across new borders, or enter into new markets.

An acquisition is often different in names only to a merger.

A merger is usually done on friendly terms, but an acquisition can be hostile. Whatever stand is taken, the ultimate objective is to achieve synergies through revenue enhancement or cost efficiencies.

The financing of an acquisition can be for cash or paper, i.e. new shares in the acquirer, or a mix of the two. If the acquirer is a highly rated
company trading at a premium to its target, it will be to its advantage to use paper rather than cash, thereby immediately securing earnings accretion in theory at least.

In an acquisition, consideration will be given to either acquiring the entire capital of the business or just the assets without the liabilities. The latter route is ususally preferred as it is cleaner, simpler and carries without it all unnecessary ‘”baggage”. In this way, the target company is merely left as a cash shell and then proceeds to either enter into liquidation or take a new business direction.

  • Do a comparative analysis with other companies in the same business – this comparison can be a function of earnings or revenues; it is also instructive to compare profitability and balance sheet ratios to determine how well the company is performing.
  • Where the business is asset intensive, the replacement cost of the assets will be a determining factor underlying the acquisition cost.
  • The present value of the target company’s projected cash flow using discounted cash flow analysis with reference to the target company’s weighted average cost of capital is commonly applied in determining the acquisition cost.Drawing up a detailed tactical game plan is all important before making an approach to take over the target company. This plan needs to look at all possible options and the response to any counter moves by others that may for example try to outbid you or where the target company swallows the poison pill. Initially, the acquirer will look to build a stake in the target company, buying shares in the open market, whilst having regard to stockmarket disclosure regulations. In Singapore, for example, any holding of 5.0% or more in a company has to be disclosed and if that holding reaches 30.0% of more than a general offer has be made for all the outstanding shares, unless the market regulators accept the argument for a waiver or ‘whitewash’.

In any merger or acquisition, it is important to understand the different corporate cultures, particularly in crossborder deals. Globalization sounds fine in theory, but in practice it is fraught with difficulties. One size doesn’t fit all. Mergers and acquisitions come in all shapes and sizes and each one involves complex issues. This is where ACH is able to advise you and lead you through the maze.

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