{"id":10265,"date":"2020-03-30T11:18:17","date_gmt":"2020-03-30T09:18:17","guid":{"rendered":"https:\/\/auren.com\/il\/global-blog\/mergers-acquisitions-2\/"},"modified":"2025-04-10T09:20:28","modified_gmt":"2025-04-10T07:20:28","slug":"mergers-acquisitions-2","status":"publish","type":"global-blog","link":"https:\/\/auren.com\/il\/he\/global-blog\/mergers-acquisitions-2\/","title":{"rendered":"Mergers & acquisitions"},"content":{"rendered":"<\/p>\n

Mergers
\nand acquisitions are being performed by companies and organizations to produce
\nlarge-scaled rapid growth, which drives the company forward.<\/em><\/strong><\/p>\n

Existing data
\nshows a completely different reality. About 80% of the mergers and acquisitions
\nprocesses around the world fails, and sometimes may cause serious damage to the
\norganization, even to push it to the point of total destruction.<\/p>\n

Most companies
\nchoose to ignore this possible risk. Furthermore, companies’ managements prefer
\nto ignore the risk as well, mainly because that sometimes avoiding the purchase
\nmay impose an even greater risk.<\/p>\n

Now, let us
\ndistinguish between the main types and categories of mergers and acquisitions
\ntransactions. <\/p>\n

First
\noption: acquisition of shares<\/strong><\/p>\n

Company A
\npurchases the shares of Company B. As a result of such purchase, Company B
\nbecomes a subsidiary of Company A. It is important to emphasize that Company B
\ncontinues to conduct its operations and businesses as usual, however under Company
\nA’s control.<\/p>\n

Therefore, there
\nis no actual change. All rights and obligations of the parties remain
\nunchanged.    <\/strong><\/p>\n

Second
\noption: acquisition of assets and operations<\/strong><\/p>\n

In most cases, Company A acquires all assets and the entire operations of Company B. In some cases, the acquisition of assets and\/or operations will be limited to certain fields and\/or assets. <\/p>\n

According to this scenario, Company B shall be entitled to receive payment or compensation for the sale and shall continue to exist under the original owner of the Company. Alternatively, the Company may decide to enter a liquidation process, in which case the consideration is being transferred to the shareholders in the form of dividends, or as a part of the liquidation process.<\/p>\n

It is important
\nto understand that according to this scenario, there’s no transfer of losses
\nand Company B can continue to exist and operate in a different business domain.
\n<\/strong>  <\/p>\n

Third
\nOption: Merger<\/strong><\/p>\n

The merger of
\nthe target Company (Company B) into the acquiring Company (Company A), in which
\nall assets, rights, and obligations of Company B will be transferred to Company
\nA. In this manner, the shareholders of Company B may receive their payment or compensation
\nin one of the following methods: cash, company A shares or any other asset.<\/p>\n

In this
\nscenario, Company B shall cease to exist and will be deleted from the Registrar
\nof Company’s registry. <\/strong><\/p>\n

How should
\na company step into a process of merger or acquisition in the right way?<\/strong><\/p>\n

First, it must locate
\na suitable and relevant company for the proper execution of the growth
\nstrategy. Actually, this is the most critical and important stage.<\/p>\n

It is important
\nto understand that the fulfillment of the growth strategy shouldn’t be done at
\nall costs! This is the main reason behind the failure of such a significant
\npart of merger and acquisition transactions. <\/strong><\/p>\n

Following the
\nfirst stage and after we located the target right and most suitable company, we
\ncan move forward into the next stage.<\/p>\n

In this stage, the
\nprice of the transaction shall be concluded and a negotiation process shall be
\ninitiated with the merged\/acquired company, particularly to agree on the key
\nterms of the transaction.<\/p>\n

An inseparable
\npart of the key terms is to agree on the payment terms, which may be done either
\nin cash or by share-swap. A share-swap transaction doesn’t include the usage of
\ncash; however, it poses an additional difficultly, forcing the valuation of
\nboth the acquired company and the acquiring company.<\/p>\n

The next stage
\nis the performance of due diligence examination. <\/p>\n

This is actually
\nthe “confrontation stage”; to verify that all the known and
\nrepresented is true and relevant. The due diligence examination is the second
\ncritical stage; it comes to verify the representation given by the company,
\npreventing a situation in which false, inaccurate and\/or untrue representations
\nwere given. <\/p>\n

It is important
\nto understand that if we were aware of such false-representations in the first
\nplace, we may have never entered into the transaction process. <\/p>\n

It is acceptable
\nto provide warranties and representations in order to avoid further delays that
\nmay result in a prolonged due-diligence examination. Such delays and prolonged
\ndue diligence examination may hinder the parties from reaching an agreement,
\nthus affecting the outcome of the transaction.<\/p>\n

Providing
\nrepresentations and warranties allows the parties to reach certain agreements
\nbased on the situation as-is; such as providing partial-payment (with an adjustment
\nmechanism). In any case, in which it has been decided to pay the full payment
\nor compensation based only on the representations, it is customary to deposit a
\nportion of the consideration amount to the hands of a trustee, who will release
\nthe funds upon the verification of the warranties and representations and
\nsubject to the fulfillment of the agreements made between the parties, in
\naccordance with the milestone schedule defined earlier by the parties.<\/p>\n

If so, how is it
\neven possible that 80% of the mergers and acquisitions transactions fail?<\/p>\n

Some of the
\nreasons for these processes failure arises since we don\u2019t always pay enough
\nattention to the face that this process involves human beings, different
\norganizational cultures, and sometimes even different beliefs as an outcome of
\ncultural differences between countries. The initial stages usually include locating
\nthe right company, valuation process, and due diligence examination are being made
\nby the companies’ managemental levels assisted by external experts. <\/p>\n

In most of the
\ncases, the failure arrives at the next stage, the execution stage. When the policy
\nimplementation process doesn\u2019t take into consideration all the factors, such as
\ncultural differences. Therefore, there is great significance for the reasonable
\nand proper operation and\/or management of the human capital. Companies can also
\nact differently and put an end to the employees’ uncertainty while processing a
\nmerger or acquisition transaction; to guide and to provide instructions and
\ntools to adjust the changes that already has been made and those that will be
\nmade in the future, in full transparency, to prevent the fear from the unknown.
\n <\/p>\n

Yoram Fishman, Financial Advisor & Specialist Auren Israel<\/em><\/strong><\/p>\n

Managing Partner: Business Consulting and Financial Department <\/em><\/strong><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

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