Financial Forecast Between Consecutive Takeover Deals (Thesis Proposal Sample)

Mergers and Acquisition: Financial forecast between consecutive takeover deals
Thesis Proposal
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Contents TOC \o "1-3" \h \z \u INTRODUCTION PAGEREF _Toc394066866 \h 3Background of Research PAGEREF _Toc394066867 \h 3Research Problem PAGEREF _Toc394066868 \h 4Research Objective PAGEREF _Toc394066869 \h 5Rationale of Research PAGEREF _Toc394066870 \h 5THEMATIC REVIEW OF RELEVANT LITERATURE PAGEREF _Toc394066871 \h 7DATA COLLECTION METHOD PAGEREF _Toc394066872 \h 12Outline Plan for Managing Project PAGEREF _Toc394066873 \h 14References PAGEREF _Toc394066874 \h 15
INTRODUCTION
Background of Research
Financial forecasting is significant in predicting the future of businesses in the corporate environment. It basically plays a great role in ensuring that a company manages its finances as well as other planning effectively. It follows that financial forecast is the process by which a firm plans and anticipates for the future. It is the prediction of the future by the firm in order to mitigate itself against the unforeseen circumstances. In an investment perspective, financial forecast is key in determining the unforeseen future of businesses and cushioning firms against unexpected losses. In this study, the question of financial forecast is brought into perspective in the context of consecutive takeover deals. According to Gaughan (2002), mergers & acquisitions (takeover deal) has huge bearing on the finances of companies and in certain scenarios would sink their normal operations. Merging defines the process by which two separate entities mutually agree to come together and operate as a single entity (Gardiner, 2005). Similarly, acquisition is the process by which a financial capable firm takes over another firm in the market. Historically, mergers and acquisitions were undertaken for various reasons including increasing market share, revenue and gaining monopoly. However, some firms undertake M&A as a mechanism of surviving hostile takeover in the market.
Of great significance in this study is to determine the financial implications on firms that are involved in consecutive takeover deals. In the history of M&A, several firms have engaged successfully in takeover deals while others have failed. Examples of firms which have engaged in M&A in the last decade include America online Inc. & Time Warner, AT&T and BellSouth Corporation, Glaxowe Wellcome Plc e.t.c. Recent debates on M&A revolve around the form of payment and capital structure of firms involved in the deals. It is clear that most transactions in takeovers involve financing by stocks which are overvalued in the market. According to DiGeorgio (2003), several acquiring firms tend to engage in takeover deals when they are overvalued in the market and this has a negative long-term return. In carrying out financial forecasts, the ability of a company to invest in other business ventures can be determined. Harford (1999) states that takeovers are mainly influenced by investment decisions undertaken by firms hence have financial consequences on operations. It is clear that several studies have been undertaken on financial implication of takeovers and critical success factors in M&A. However, limited research has been conducted on the consequences of engaging in a consecutive takeover deals. Against this backdrop, this study seeks to shed light on the importance of carrying out financial forecast in an event of consecutive takeover by a firm.
Research Problem
Merger and Acquisition is an inorganic means of achieving company growth (Diaz, Olalla and Azofra, 2004). As such, takeovers in the corporate environment are considered to be investment prospects undertaken by firms to expand their operations. However, some firms engage in takeovers as way of shielding themselves from takeover by other firms hence it's a surviving strategy. Regardless of the reason for getting into M&A deal, it is clear that firms commit their shareholders' funds in the takeover deals with expectation of increased return at the end of financial period. To avoid conflict of interest among the various stakeholders, financial forecast is necessary in foreseeing the viability of engaging in a consecutive takeover deal. It is inevitable that firms involved in mergers & acquisition have to commit huge financial resources that sometimes affect their ultimate operations and performance in the corporate environment (Firstbrook, 2007). Financial forecast provides an overview of the company's financial position and health after first acquisition or merger. These financial forecasts provide the information required by the management and other stakeholders to make informed decisions on the possibility of a second and consecutive takeover deal (Harford, 2003). Financial forecast involves scrutiny of capital structure of the firm hence examining the extent of leverage deficit that the firm uses to finance its investments. It follows that financial forecast plays a great role in determining the ability and need of a firm to undertake a consecutive takeover. With this background, the study seeks to unearth reasons behind the necessity of performing financial forecasts by firms especially during a consecutive takeover deal. It is also worthwhile to mention that financial forecast can be viewed in terms of financial performance of the firm. In this regard, the value of the firm is brought into perspective in terms of performance before and after the takeover deal. For a long time, several firms have undertaken mergers and acquisitions deals successively without considering the ultimate impact on the shareholders' fund. This area of study has not been emphasized a lot by researcher who mostly limit their study to the effects of M&A on the financial performance of firms.
Research Objective
The main aim driving this study is to establish the impact of undertaking financial forecast on the corporate financial performance of the acquiring firms especially during a successive takeover deal. The specific objectives include:
* To compute accounting ratios in pre-and post-merger periods using the annual reports of the company for the last 10 years.
* To find out the impact of successive takeover deals on the financial performance of companies using the accounting ratios computed.
* To establish the impact of successive takeover deals on the corporate governance of the acquiring firm.
Rationale of Research
Merger and acquisition is a popular phenomenon in the US hence attributed to the fast growth of companies and economies. This can be exhibited on past M&A in both US and UK which has seen numerous companies expand on various aspects including financial performance, increased market share, enhanced management and others. However, few researches have indicated the long term effects of mergers and acquisition on corporate financial performance. In fact, the available researches are showing conflicting conclusion on the effects of successive takeover deals on the financial performance of companies. It is inevitable to mention that companies commit huge shareholders' funds on the M&A which in some cases yield positive results by increasing their wealth while in some cases it leads to loss of value. According to Harford (2003), successive acquirers require insightful evaluation of their financial status so as to avoid negative effects on the general performance of the companies. It is against this background that this study comes into light to undertake financial forecast of companies involved in mergers and acquisitions in successive periods. This research study plays a great role in establishing the implications of successive M&A on corporate financial performance. Similarly, a successive takeover deal affects the value of the firm as well as the stock prices in the market which have adverse implication on the shareholders' funds in the company. The study will focus on evaluating the performance of the acquiring firms before and after takeovers in a bid to evaluate its ability to remain stable and operate normally in the market. In this regard, the study will compute and evaluate accounting ratios of companies involved in successive takeover deals.
THEMATIC REVIEW OF RELEVANT LITERATURE
A number of previous studies have given insight on the financial concerns associated with mergers and acquisitions. Harford (2003) has insisted that while M&A are meant to enhance the performance of firms in the corporate environment, it is also likely to reduce the value of the firm in the stock market. Mergers and acquisitions are associated with numerous advantages in the business environment which include large market share, enhanced corporate governance, shareholders' value maximization among other things. Similarly, M&A is a strategy and mechanism used by firms to survive hostile takeovers in the corporate environment which characterizes the stiff competition in the market. It follows that Hoyle, Schaefer & Doupnik (2001) defines mergers as the combination of two or more firms in which the superior firm takes over the operation of the target firm and the acquired firm terminates as an entity. However, it can be viewed in different perspectives. Mergers by absorption refer to a scenario where a firm purchases all stocks of the other where the absorbed firms cease their legal entity and become part of the acquiring company. On the other hand, mergers by establishment is a situation where two or more firms merge their operation into one and comes up with a totally new entity where the identity of the merging firms cease to exist.
The aspect of financial forecasting is critical in ensuring a company is going concern. It involves the prediction of the future based on the performance of the firm as exhibited in the current and past financial statements. While undertaking financial forecasting, the analysts make use of the accounting ratios ...