Acquisition and Restructuring Do More Harm Than Good for the Development of Enterprises

Abstract

Acquisition and Restructuring are the important trend in the development of the recent world economy, they are also the strategic choice for enterprises to become larger and stronger. In recent years, with the further development of economic globalization, the acquisition and restructuring of enterprises are increasingly concerned by many multinational companies and even the national government. Besides, both acquisition and restructuring cannot be considered as good or bad for the comprehensive development of enterprises. In this case, the report analyzes the advantage of acquisition and restructuring for reducing operational cost as well as the reasons for the failure of acquisition and restructuring in order to provide recommendations for the future development of enterprises. The report concludes that acquisition and restructuring do more good than harm in the further development of enterprises.

Key Words: Acquisition, Restructuring, Synergy Theory, Differential Efficiency Theory, Operation Cost

Table of Content

Abstract        3

1.0 Introduction        5

1.1 The issues on acquisition        5

1.2 The issues on restructuring        6

2.0 Literature Review        6

2.1 The key entrepreneurship theories        6

2.1.1 Synergy Theory        6

2.1.2 Differential Efficiency Theory        7

2.2 Operational Cost        8

2.2.1The acquisition for reducing Operational Cost        8

2.2.2 The restructuring for reducing Operational Cost        8

3.0 Analysis and Interpretation on findings        9

3.1The reasons for the failure of Acquisition and Restructuring        9

3.1.1 The reasons for the failure of Acquisition        9

3.1.2 The reasons for the failure of Restructuring        10

3.2 Recommendations for implementing Acquisition and Restructuring        11

4.0 Conclusion        12

5.0 Reference        13

1.0 Introduction

The report primarily discusses the Acquisition and Restructuring of enterprises since it is an essential process for the comprehensive development of enterprises.

 Acquisition means an enterprise will directly or indirectly dominate another company whose assets, stock equities, or operational rights have been acquired by the enterprise while merger stand for the agreement between two enterprises for integration, Besides, it is a way for an enterprise to utilize its inactive capital for achieving the appreciation of the capital (Levy, et al., 2017).

Restructuring, or Re-engineering are included Internal Restructuring and External Restucturing. Through rational division and structural adjustment on the assets and liabilities of enterprises, they can regroup and reset their assets and operations. Additionally, Acquisition is a way for the external restructuring of enterprises (Chen, 2015).

Acquisition is the transfer of equity and corporate control while the restructuring is the change of asset structure. For example, company A acquires the stock equity of company B, it may use the equity of Company B for the mortgage financing, in this case, for company A, it restructures its assets, but for company B, it is only the replacement of shareholders, in this case, it can be said that it was acquired instead of the restructuring of assets. In capitalist countries, the processes of acquisitions and restructuring are considered necessary step to research the operation of enterprises (Hernández, et al., 2018).

The acquisition, as a corporate restructuring resource, helps enterprises to integrate their businesses and assets so as to explore new market and increase market share (Hernández, et al., 2018). Generally, enterprises obtain greater power in the market and create a favorable financial environment through the acquisition and restructuring. However, the acquisition and restructuring between enterprises are not always so desirable.

1.1 The issues on acquisition

The main issues in the acquisition between enterprises are, from the external macro-environment aspect, the underdeveloped merger and acquisition market and broker as well as the incomplete law or regulation; from the enterprise aspect, the backward perception of enterprise leader, which will hinder the acquisition, the lack of integration after acquisition, the failure on evaluating target enterprise (Yeboah & Asirifi, 2016).

1.2 The issues of restructuring

Restructuring, as the process of business adoption, will also cause some issues. The restructuring based on acquisition stands for the increasing number of decision making portfolio and investment portfolio, which means the division of corporate assets cannot satisfy every class in the enterprise, in this case, it is difficult for the company to make the correct decision. Moreover, the poor management will lead to lower management efficiency of restructuring enterprises (Hernández, et al., 2018).

2.0 Literature Review

Enterprises in a recent business environment try their best to reduce operational cost in order to obtain more reasonable profit. Ronald Coase, a famous economist, has stated that the reason for the acquisition between enterprises is the reduction of transaction costs, which are the time and money spent in the business process (Katarzyna, 2015). In this case, through the review of literature, the report explains the effects of corporate restructuring and corporate acquisition on operational cost which is a part of transaction costs.

2.1 The key entrepreneurship theories

There are some essential entrepreneurship theories which will contribute to the understanding of Acquisition and Restructuring.

2.1.1 Synergy Theory

Synergy Theory stands for the research on the common features of different substances and their synergistic mechanism which is also a comprehensive theory on studying the similarity of various systems from disorder phase to order phase (Yeboah & Asirifi, 2016). The synergy effect is an important indicator for people to measure whether the acquisition is successful. Based on the Synergy Theory, the combination of two enterprises will produce a greater effect which means the combination of two enterprises can be more profitable than the individual two enterprises. In this case, the purpose of acquisition and restructuring between enterprises is to create synergies.