Answer each question with at least 200 words citation and reference.
1.Two leading explanations for mergers and acquisitions involve revenue synergies and cost synergies. Which of these reasons is the more valid criterion for pursuing a merger or acquisition? Why? Using ABCTech as an example, what recommendation would you give them to minimize risk regarding attempting a merger after year 1 of operations? Support your recommendation. (See “DBA-820 Integrated Case Study” in the Course Add-Ons.)
2.What considerations should ABCTech address when going through the due diligence phase as part of a potential merger or acquisition? How much should they divulge to the other company? Why? What are the associated risks? Explain. (See “DBA-820 Integrated Case Study” in the Class Resources.)
Answer each question with at least 200 words citation and reference. 1.Two leading explanations for mergers and acquisitions involve revenue synergies and cost synergies. Which of these reasons is the
Week 2 DBA 820 ABCTech case study analysis Name GCU DBA820 Date Week 2 DBA 820 ABCTech case study analysis For this case study, we have ABCTech, founded by Christianson Chris and Thompson Thunder, that offers cheaper security for computer users. During the first operation years, the company seeks to achieve $250000 in revenues, while during the second year, the two entrepreneurs seek to double the amount. Therefore, the two have taken a $250000 loan to help in operations, more staff and increasing cash flow. However, since Thompson and Chris are new to the market, they never considered essential costs like starting up. The two entrepreneurs have been proposed by a large company that wants to purchase their company for $500000. Therefore, this paper seeks to analyze whether they should accept the offer. The financial discussion Although both Chris and Thompson are new to the market, they have developed proper capital budgeting strategies to understand the company’s current performance and how it will perform in the future. Making proper decisions helps in determining whether a company will succeed or not in future; therefore, using analysis approaches like the IRR (internal rate of return), PBP (payback period), and NPV (net present value) is essential in determining the company’s performance in future. The internal rate of return is an essential tool for short-term performance, while the NPV and PBP are significant for the long-term company’s evaluation. (Hinze & Sump 2019). The NPV is essential by offering flexibility and convenience for companies when market conditions shift radically, thus becoming unpredictable. Despite Chris and Thomson determining that the company will be worth $500000 in the second year, they should consider internal and external factors. Previous and historical information can be used to predict an organization’s future. Financial analysis is essential to numerically support data without making assumptions. Generally, the company’s liquidity analysis is essential to provide both positive and negative perspectives of the organization. The buyout offer A large software company offers Chris and Thomson $500000 to purchase their company. This would be the most appropriate short-term decision since they would get revenue from the project without incurring additional costs and striving to improve the performance of this organization. (Saputra et al. 2020). However, the issue with this option is the earning will be lower than what Chris and Thomson had projected since they have already invested $250000 and expect in the second year the company to be valued at $500000. Application of the tradeoff theory helps in understanding the benefits a company will achieve after an investment. The option to get a loan The second option is that Chris and Thomson have been getting a $250000 loan to help manage operating costs and start up the firm successfully. However, since the two partners are new entrepreneurs in the market, it’s impossible to understand limited capital and have adequate information on investments. Chris and Thomson have not considered internal and external factors that may lead to their company’s values. Additionally, despite taking the $250000 loan, new costs may arise throughout the process, thus preventing their operations. The best option, according to ethics From an ethical background, the two investors should consider selling out the company to a large firm. However, before selecting this option, they should understand that operations and decisions made regarding the software shall be based on the new company. Therefore, although the original intent of the company was to prevent cybercrime and breaches, the company may make decisions inconsistent with the initial intentions. Consequently, Chris and Thomson have a close connection to the company; however, as the merger occurs, the larger company will make financial decisions that Chris and Thomson must implement. (Nugroho et al. (2021). The two entrepreneurs are suffering while procuring starting-up capital, and there are possibilities that they may not procure adequate finances. After starting up, external factors may prevent the required performance of the new company. For example, in 2022, the new companies starting up were affected by the Russian war, which lowered revenues and increased the cost of production. Other factors to be selected include the expectations of the investors in their company since the company may have different intentions during the buyout. The competitive factors are also significant since, in a highly competitive market, it may take longer for Chris and Thomson to reach the required revenue. Generally, Chris and Thomson have limited knowledge of finances; therefore, even after acquiring the loan, decisions made may prevent them from repayment. The large company seeking to buy out ABCTech already has the necessary human resources and tools to actualize Chris and Thomson’s dream. Although it may be unethical that the investors are losing their dream company, it will continue delivering the necessary revenue. At the same time, Chris and Thomson will receive the money instantly without waiting for two years. References Hinze, A. K., & Sump, F. (2019). Corporate social responsibility and financial analysts: A review of the literature. Sustainability Accounting, Management and Policy Journal. https://www.emerald.com/insight/content/doi/10.1108/SAMPJ-05-2017-0043/full/html?casa_token=Fr1pSOUoAk8AAAAA:iXTR8P_hmeDQPFSOcaFZiNjx1nC6lG65oPTslG4hB5A5KU7xV_tSzLgdw_7tkhJrzsslzzyaps9XabU9obaNHYjzaB_s2MHTSJ8C124BhxQ_UFdPlSk Nugroho, M., Arif, D., & Halik, A. (2021). The effect of loan-loss provision, non-performing loans and third-party funds on capital adequacy ratio. Accounting, 7(4), 943-950. http://growingscience.com/ac/Vol7/ac_2021_13.pdf Saputra, E., Resmi, S., Nurweni, H., & Prasetyo, T. U. (2020). Do Character, Capacity, Capital, Collateral, and Conditions Affect Bad Loans? Journal of Accounting and Finance Management, 1(3), 97-105. https://www.dinastires.org/JAFM/article/download/17/16