Kanbay: Managing Internal Aquisitions

For an acquisition, plan for the right evaluation criteria and analyze accurately the various factors that might influence the evaluation of the gain. Evaluate whether the company getting the value for money and compute whether acquisition is bringing what company needed.

Financial planners need to analyze the financial statements and data for hypothetical companies, a potential acquirer and a potential target. Then examine these companies at every stage and consolidate the data to compare with new technologies and Internet tools that can help for better assess acquisition value. Process Includes:

* Understanding the corporate motives behind mergers,

* Screening targets using ratio analysis and strategic analysis,

* Value candidates far more accurately,

* Assessing the overall impact of a merger on company performance,

* Forecasting expected future cash flows,

* Determining the appropriate discount rate

* Choosing the right mix of securities to transact the deal

* Following through during the acquisition

* Planning for post-merger integration

Through Sept. 26, global announced deals in the third quarter totaled $563 billion on 6,930 deals compared with $354 billion on 7,051 deals in the year-prior period, according to Thomson Financial. That makes it the best third quarter since 2000 in global dollar volume. (Anonymous, 2005).

Pinnacle Financial Partners Inc. of Nashville, the fastest-growing bank in Tennessee, announced its first acquisition deal recently two weeks ago, an agreement to buy Cavalry Bancorp Inc. of Murfreesboro, Tenn., for $175 million. Cavalry's $605 million of assets would nearly double Pinnacle's total, to $1.48 billion, making it the state's second-largest banking company. The deal price is 3.03 times Cavalry's book value and 21.4 times Cavalry's previous-year earnings. And when the deal is completed, as it is expected to be in the first quarter of 2006, Cavalry's shareholders would have about 42% of the outstanding Pinnacle stock.(Osuri, 2005).

Choosing best strategic alliance fit for the Pinnacle out of existing local banks is based on better network presence and net value in assets and liabilities. Strategic fit of these banks will be measured on the two axes, Market Strength and Financial Strength. Market Strength is dependent on the bank's competitive position, product range, and the numbers of branches. Financial Strength is dependent on Assets and liabilities of a bank, and its customer base. The deal would also move Pinnacle into the attractive Rutherford County with eight branches, doubling its branch count in the Nashville metropolitan area. Many analysts believe banks might have trouble integrating, however, Terry Turner, Pinnacle's chief executive officer said that though Cavalry has a traditional thrift background, its culture is now much closer to Pinnacle's. The cultures are not the same, but they meld together very well. He also said. "Cavalry is an urban community bank, and they know how to serve the sophisticated needs of the community." This case is similar to the simulation study. First South Pacific Bank (FSPB) based in Honolulu, Hawaii has $400 billion in assets. The company is strong in consumer baking and has enough presence in Americas and Europe but not in Asia. To provide the services in Asia it had planned to implement acquisition strategy for the bank in Kitanesian market. Bank's strategy in Kitensian market is to target the consumer finance and corporate finance segments. Choose best out of existing local banks after assessing the historical financial data and then with discount rate. The acquisition to a bank was chosen after accurately interpreting macroeconomic indicators and financial data, correlating that to the impact on the cash flows of each target banks.

One other instance in technology industry the IBM-Rational Merger has produced