You have been employed as a change consultant by an organization that is currently looking to purchase another similar-sized company in order to expand the presence in Scotland ‘Post Brexit). Have been tasked to produce 3000-word report for the managing Director who is concerned for the success of the move.

Consultation Report on the Proposed Acquisition of ABX

TABLE OF CONTENTS

Executive Summary. 3

Introduction. 4

Acquisitions as Strategic Moves. 4

Problem Statement. 5

Analysis of Z Limited’s Acquisition of ABX.. 6

Potential Benefits. 6

Potential Challenges. 7

Brexit and its Implications on the Proposed Acquisition. 9

Recommendations. 11

Brexit Impact Assessment Sheet. 12

Conclusion. 13

References. 15

Executive Summary

When organizations are looking to achieve growth or expand, one of the common ways many business owners consider is through the acquisition of another similar organization. Arranging an acquisition is one of the best ways by which a company can achieve rapid growth over a short time, improving its market share, gaining asset control, and achieving synergies in various operations. Acquisitions are faster, less risky, and less expensive compared to conventional methods of realizing growth such as marketing efforts. While they can result in rapid growth and business success, acquisitions also pose various problematic issues that companies have to deal with along the way. Without proper planning and a laid out plan, several things may go wrong, failing the deal. Therefore, it is important that the benefits and potential disadvantages, as well as challenges that may be encountered, are understood and addressed before putting the acquisition of another company into consideration.

Z Limited has been considering realizing organizational growth in the United Kingdom region through the acquisition of ABX, a similar-sized company in the same industry, operating in Scotland. Various issues need to be addressed before the finalization of the deal, including the potential benefits of such an arrangement and the various challenges that will be faced along the way. With the recently concluded Brexit, the company has to analyze the economic and business implications of the move to understand how to effectively respond and be prepared for potential challenges. By conducting an impact assessment analysis, the impact of Brexit on the proposed acquisition can be understood and a contingency plan developed to ensure a smooth transition during the acquisition of ABX.

Introduction

Acquisitions as Strategic Moves

One of the most common ways through which organizations achieve growth and other strategic goals is through the use of strategic alliances, mergers, and acquisitions (Green, 2016). Such arrangements are common in today’s dynamic business environment, with increased competition, globalization, and the need to expand operations. An acquisition can be simply explained as a transaction between businesses where one business or company purchases all of or a portion of another business’s assets or shares. Companies enter acquisitions intending to take control of and build on another company’s strengths, besides taking advantage of synergies (Green, 2016). In an acquisition, both companies involved survive and continue to do business as one, as opposed to a merger, where only one of the companies survives or an amalgamation, where none of the initial companies survive. The acquiring company typically buys the assets or shares of the target company, achieving the power to make decisions on the assets acquired without the need for approval from the shareholders of the target company.

Companies use acquisitions to reshape and redirect corporate strategy. Today, many corporate executives and managers regard entering acquisitions for better access to market, technology, resources, products, and management talent as easier, less, risky, and better than achieving all these goals through internal efforts (Green, 2016). While such corporate transactions are more common today more than ever before, the chances of success depend on the level of planning and preparedness that both companies involved engage in, as well as proper management of the companies post the acquisition transaction. Many acquisitions fail to live up to the expectations of the executives since there is a huge difference between entering acquisitions and making them work. It is, therefore, important to understand how acquisitions work and how they can be properly managed to ensure that the objectives of such arrangements are achieved.

Problem Statement

Over the last year, Z Limited has been performing well in the United States and Canada markets. The company has achieved immense success and growth, becoming one of the most successful and top-performing companies in the United States. With increased competition and the need for further organizational growth, the executives of the company have been considering expanding into the European market. There are two available options for the organization if it wishes to penetrate and access the new market – arranging the acquisition of an existing company in the region or opening up stores and branches in the region to begin selling in the region. A majority of the company’s shareholders and executives believe that an acquisition of ABX, a similar-sized company that is based in Scotland, with branches and offices across the United Kingdom, is the easiest and best move, arguing that the chances of success with this move are higher than the chances of success if the company decides to open shop in the new market.

In this report, the option of entering an acquisition transaction with ABX is analyzed to identify the various issues associated with such a move and assess the level of risk involved. Various regulation requirements, challenges that may be faced with the acquisition plan, the implications of Brexit on the acquisition arrangements, and the potential benefits from the use of acquisition for new market penetration are analyzed in depth. Recommendations are provided on the best decision for Z Limited in its quest to expand into the European market.

Analysis of Z Limited’s Acquisition of ABX

Potential Benefits

The proposed acquisition of ABX aims at ensuring that the operations of Z Limited are expanded into Scotland and the countries around it. There are various benefits that such a strategic move would bear. First, the company would benefit from greatly reduced barriers to entry (Waverman, 2019). Through the acquisition of an already existing company in Scotland, Z Limited would be able to enter the Scotland and UK market instantaneously with an already existing and recognized brand that has a good reputation and an existing client base. Through the arrangement, the company would be able to overcome many market entry barriers and gain access to the Scotland market. Direct entry into the market without such an arrangement would be very expensive and challenging as a result of market research expenses, capital for the construction or leasing of office spaces and outlets, cost of developing new products for the market, and the costs and time spent on building a substantial client base in the new market.

Through the acquisition of ABX, Z Limited would increase its market share quickly (Nelson, 2018). With increased competition as a result of globalization of companies and the increase in the number of firms in the same industry, the acquisition of ABX and expansion into Scotland would enable the company to achieve a competitive edge in its industry. This is because the acquisition of an existing company would enable Z Limited to acquire market synergies. Many companies decide to take over other companies to gain resources and competencies that they do not currently have. By acquiring ABX, Z Limited would gain access to competencies and resources that it does not have, including revenues, an improvement in the financial position, and a larger capital base. The company would also be able to withstand any future economic slumps and battel competition with more ease as a result of having a wider market reach.

Z Limited would also benefit from the access of specialists in the Scotland market. This could include financial, human resources, and legal specialists that are working for ABX. The company will also benefit from a qualified and experienced workforce, avoiding the challenge of recruiting new employees in the new market. Access to capital will also be improved if the company acquires ABX. Entering the Scotland market through direct entry would require a huge capital investment to realize growth and build a client base. With an acquisition, however, a larger capital base is available and the company can avoid investing more funds to build a client base. Also, an acquisition would result in the development of fresh ideas and new perspectives in business, as it would result in the pooling of human resources and experts who are passionate about enabling the company to achieve its goals (Nelson, 2018).

Potential Challenges

The acquisition of ABX can be a good move for the company to achieve growth by increasing its revenues. However, such a corporate transaction may also create several disadvantages and hitches for the company. These challenges and potential problems have to be taken into consideration before the decision to pursue an acquisition is made. A culture clash is one of the most common problems that occur during acquisitions. Both Z Limited and ABX have distinct cultures that they have developed since their inception. The organizational culture of ABX may conflict with that of Z Limited, which would become problematic since managers and employees from both companies would fail to integrate as anticipated. They may also not support the acquisition, which may result in anxiety and antagonism within the organization. Resistance from employees and managers is one of the major reasons why acquisitions fail (Howson, 2017). Such resistance is often caused by existing differences in organizational culture and a lack of proper management of the transition.

The proposed acquisition may also result in employees duplicating each other’s roles and duties (Howson, 2017). This is because the two companies are similar and in the same industry. Therefore, cases may arise where two departments or individuals do the same activity or job. When this occurs, it results in an excessive and unnecessary cost on wages and salaries. The company may have to perform a job reorganization and job cuts to ensure efficiency is improved. Such actions may in turn negatively affect employee morale and productivity. Z Limited and ABX may also have different objectives for entering the acquisition arrangement, as they have been conducting operations separately before. While Z Limited is looking to expand into Scotland, ABX may be looking to cut costs. Different objectives may result in resistance and disagreements, undermining the acquisition efforts. The decision to acquire ABX may also be ill-informed, as there may be more suitable companies for the acquisition. The acquired company may end up bringing more challenges to the arrangement rather than benefits, minimizing the chances of achieving growth and other strategic objectives.

While an acquisition may enable the organization to achieve growth and a wider market reach, it may also hurt the image of the company or the existing brand (Green, 2016). Research must be conducted to determine whether the two different brands should remain separate after the acquisition or merged into one to avoid hurt the brand image. To overcome most of these challenges, business analysts emphasize that there must be a strategic fit between the acquiring company and the target company where the target company can contribute to the strategy of the acquirer (Waverman, 2019). They also stress the need to ensure an organizational fit between the two companies involved in the acquisition through the matching of corporate cultures, administrative systems, and demographic characteristics. An adequate level of organizational fit ought to guarantee the success of an acquisition. However, this is not always the case. It is, therefore, important that executives and planners look further than achieving an organizational fit, which Z Limited and ABX may already have.

Some of the factors that have to be addressed besides the realization of an organizational fit include the presence of multiple perspectives on the arrangement, time considerations, ambiguity in the deal, and environmental factors such as government policy. Multiple perspectives arise as a result of the involvement of many analysts and specialists with different goals and expertise, making it difficult for managers to integrate these perspectives. The increased momentum and urge to close the acquisition deal often result in the limitation of the consideration of integration issues (Waverman, 2019). It may even result in the premature closure of the deal. Important areas of ambiguity are often left unresolved during the completion of the acquisition agreement, causing problems later on. The environmental factors (political, economic, sociocultural, technological, environmental, and legal factors) also have to be considered. An analysis has to be conducted on all these factors before the decision to enter the agreement is made. Amongst all these factors, a key factor to note is the recently concluded Brexit, a political and economic factor that will largely affect the proposed deal.

Brexit and its Implications on the Proposed Acquisition

Brexit will impact every organization operating in the United Kingdom. Businesses in Scotland will have to adapt to the changes in the free trade regulations and movement of goods and people across the European Union region (Newth PhD et al., 2018). It is imperative that before any business transactions are conducted, Z Limited conducts a root and branch evaluation of the business practices are will change in Scotland, following Brexit. This will enable the company to understand how the move by the government will affect operations in Scotland. There are various ways through which the operations of ABX will be affected. At EU ports, the flow of goods into and out of the UK will be affected. This may result in delays of up to a few days. If there are any plans to ship goods in and out of Scotland, the company needs to be aware of the blockages and delays that may arise.

Business travel may be affected by the imposition of new immigration laws and checks (Newth PhD et al., 2018). This may create challenges for employees from Scotland working in the United States after the acquisition, as they may lose their healthcare cover and rights. Brexit will result in price increases for business energy sources such as electricity and gas since some energy suppliers may exit the UK. This may increase the production and operational costs of the firm in Scotland. Cross-border financial services will also be disrupted or affected in one way or another. Also, the flow of data to and from the UK may be affected. The company may face extra costs when dealing with customs import duties that ABX formerly did not have to pay. This will also be the case with administrative overheads when operating in the country. Besides increased import and border charges and wait times, the company may have to source new suppliers and distributors in Scotland to minimize potential delays in the delivery of raw materials and goods. This will also increase the operational costs of the company.

Z Limited, upon acquisition of ABX, may face trademark problems if the existing trademarks were EU trademarks. The company will have to register such trademarks afresh using new intellectual property protection laws that will be imposed on UK businesses conducting operations overseas after Brexit (Kierzenkowski et al., 2016). ABX relies on some EU citizens for purposes of staffing and manpower. As a result, Brexit will affect the workforce since there may be new regulations affecting EU citizens working in Scotland. Issues related to insurance, work permits, and health cover may arise. The market and populace served by the company will also be affected by Brexit. Therefore, the company needs to determine the impact of the move on the target market in Scotland.

There may also be benefits arising from the economic and political move. ABX may be serving other businesses and clients that are located in the United Kingdom. The demand for the company’s products, as a result of potential difficulties and challenges in importation and transportation of goods, may increase. Movement of goods from outside the EU into Scotland will most likely remain unaffected by Brexit. However, new import and export documentation may be required and logistics costs and methods may slightly change (Kierzenkowski et al., 2016). It is important to determine the costs that may be involved with these slight changes. Lastly, there may be a lot of hidden and incidental costs with all the business processes conducted in Scotland. For instance, employees who may have to travel to the EU or the UK may incur extra insurance and travel charges since insurance covers may no longer cover the UK. Movement of goods into the EU and within Scotland may also be more costly.

Recommendations

The proposed acquisition of ABX for purposes of expanding operations into Scotland is a good strategic move by the company. However, there is a need for proper planning and research to ensure that the potential challenges discussed above are avoided, minimized, or handled effectively to guarantee the success of the strategic move. The following are the recommendations to the company before proceeding with the proposed acquisition:

1. The executives of both companies should seek to overcome the issue of multiple and fragmented perspectives by being actively involved in the acquisition planning process. They have to develop ways of achieving a balance among different interests to achieve harmony and increase the chances of the strategic goals of the acquisition being achieved.
2. The rush to close the acquisition deal should be properly managed to ensure that all the interests of both companies and their executives are addressed.
3. The executives and planners involved should avoid seeking to eliminate any ambiguity and uncertainty present. Instead, they should focus on it to ensure that all important aspects of the deal are discussed.
4. It is important to conduct adequate research on the effect of Brexit on the operations of the company in Scotland. Most of the challenges that may be faced have been pointed out in this report. Contingency planning is necessary to come up with ways of managing the challenges posed by the Brexit development. To determine the appropriate contingency plans, the company may conduct an impact assessment using the list of questions below and come up with a document listing how each identified challenge will be addressed:

Brexit Impact Assessment Sheet

1. Employees and Management:
2. How will the existing workforce of ABX be affected by Brexit?
3. Are there any employees who are EU citizens or in the EU?

• Is there any plan to source workforce from the EU?

1. Do any of the employees and managers need to travel to and from EU countries as part of their job?
2. Standards of operation:
3. Are there any EU standards that govern the operations of the company?
4. Are there any new laws and regulations in Scotland that may affect operations?
5. Export/import and logistics:
6. Are there any imports or exports to or from the EU countries?
7. Are there are existing licenses to conduct operations in the EU?

• Are there any suppliers or distributors from the EU?

1. Do some suppliers store goods in warehouses that are based in EU countries?
2. Patents and Taxation:
3. Does the company operate under any EU tax agreements?
4. Does the company hold any money in financial institutions in the EU?

• Are there any grants or sources of funding that come from the EU?

1. Are there any patents, registered copyrights, or trademarks registered in the EU?

Using this impact assessment sheet, the company will acquire a deeper understanding of how the various aspects of the company will be affected by Brexit. A contingency plan may then be developed to respond effectively to each identified challenge, improving the chances of success after the acquisition deal is finalized.

Conclusion

An acquisition is a good way of realizing the strategic objectives of a company. It enables an organization to realize growth and expand its market, amongst other benefits. The proposed acquisition of ABX by Z Limited is a good move to achieve organizational expansion and gain entry in the Scotland region. However, proper planning and research have to be conducted to increase the chances of the success of the proposed deal. Through proper planning and understanding of how acquisitions work, the company can achieve its objectives through the acquisition deal.

References

Green, M. B. (2016). Mergers and acquisitions. International Encyclopedia of Geography: People, the Earth, Environment and Technology, 1-9.

Howson, P. (2017). Due diligence: The critical stage in mergers and acquisitions. Routledge.

Kierzenkowski, R., Pain, N., Rusticelli, E., & Zwart, S. (2016). The economic consequences of Brexit.

Nelson, T. (2018). Mergers and Acquisitions from A to Z. Amacom.

Newth PhD, F., Hansen, D., Kalinowski, B., Kokias, P., MacEachin, R., Marshall, R., … & Williams, C. (2018). Brexit Report-Impact on Business Models of Scottish Companies.

Waverman, L. (2019). Corporate globalization through mergers and acquisitions. Routledge.