Chapter 1Research Proposal 1.1 Overview of Private Equity in European Merger and AcquisitionSince 1980s, private equity in the European continent has supply more than €125 billion of capital to finance the investment in prospective companies throughout the continent (EVCA, 2001).The growing number of merger and acquisition has increased the capital for investment.
In 1999, the cumulative number of capital rose into €25 billion for 11,000 investments, represented 20% of total capital during the two decades. About 41-percent of this number was dedicated for financing the expansion such as merger and acquisition transaction. 1.2 Identification of Relevant LiteratureThe wave of corporate merger and acquisition that require huge amount of money has driven the birth of financial sponsors to smooth the transaction. In Europe, the existence of financial sponsor for investment has emerged few decades ago since the early 1980s.
According to Fruhan (2006), private equity firms represent about one quarter of merger and acquisition transaction and this number continue rising as the number of merger continue rising as well. 1.3 Key Research QuestionsIn order to add the features of services or to expand the geographical coverage, a firm may decide to explore new market, create new products, strengthening research and development (R&D) initiatives.
However, doing business in new market may provide a tough challenge for the firm and present high risk.Under such circumstances, the firm is likely to conduct partnership or perform merger and acquisition (M&A) with corporations that have core competences in the desired features or geographical coverage.The intention become more feasible since the advancement of Internet technology helps the company to conduct global communications from and to any parts of the world. However, the merger and acquisition (M&A) practice may present challenge because it requires lots of money to finance the partnership.
In order to finance the assets and cash flow of the M&A initiatives, the firm needs to structure the transaction by using several method of leveraged financing suitably. Concerning the issue, therefore the research statements or questions are:a) Are there benefits of conducting merger and acquisition (M & A) for macroeconomic of a country?b) How significant the roles of emerging ‘new superpower’ (financial sponsors) in the global M&A initiatives I choose the two research questions since they focus on two complementary discussions. The first develop ideas about the benefits of merger and acquisition (M&A) in today’s business while second develops strategy to finance the transaction. 1.
3 MethodologyIn this research, I will employ non-participant observation method by performing analysis of qualitative information from academic journals, books, trade magazines and many others.Ten data collection will be performed through indirect approach, which means that the collected information is secondary in nature. In addition, I will also perform direct observation when collecting data since this method is suitable because a direct observation would provide a more detail and more accurate information about the object of study.In addition, to add comprehension, I will conduct some researches in my company using the data and observation of the working environment. Therefore, I will use a variety of sources including electronics journals, investigations, and books that relate to the discussion of merger and acquisition (M&A) 1.4 Timescale/research planningTable 1 Time Schedule of Finalization of my ResearchNo.ActionsTime ScheduleNote1Research Proposal FinalizationJan – Feb 2007The proposal will be finalized on several aspects such as aims and objective, literature review, recommendation etc.
2Composition of Literature ReviewFeb 2007 – July 2007Once the proposal accepted by professor. I will compose literature review3Data CollectionJuly 2007 – October 2007Collecting data from various sources both primary and secondary data4Data AnalysisOctober 2007 – December 2007Composing data analysis from the findings I obtain in the data collection5Formulation of Recommendation to M&A financingDecember 2007 – January 2008Formulating recommendation based on the previous findings and drawbacks in the past policy6ConclusionJanuary 2008Chapter 2Literature Review 2.1 Advantages and Disadvantages of M&A and Impact on Macro economyIn general, merger and acquisition provides clear benefits to corporations since it is a fast track to achieve the desired results by adding and widening the number of products/services and expanding the service coverage.According to Vadim Kotelnikov (2003) in his article Mergers & Acquisitions, there are four main underlying reasons why behind the increasing number of merger and acquisition (M&A) in the world as following:To have complementary products in order to extend the products offeringTo smooth the expansion in new markets or to strengthening distribution channelsTo take benefit of economies of scaleTo obtain the required technologies that complement or replace the currently used ones.In addition, Kotelnikov (2003) reveals that there are many advantages of performing merger and acquisition (M&A).
The benefits include synergies between companies that perform M&A, the addition of people, infrastructure, global sales, marketing and distribution opportunities.Concerning the impact of merger and acquisition on macro economy, there are interesting findings showing that merger and acquisition action provide favorable impact on corporate success and employee remuneration scheme in the UK.According to Conyon, Girma, Thompson, and Wright (2004), merger and acquisitions between companies in the same industry are likely to increase profitability and wages, which resulting in the increased efficiency. It means that M&A has favorable impact on macro economy of a country.
2.2 Financing the Merger and AcquisitionConcerning the financing of M&A practice, in this paper, we focus on the significant roles of emerging ‘new superpower’ (financial sponsors) in the global M&A initiatives in which the type of financing on any M&A may vary such as revolving lines of credit, new private equity placement, Equipment leases or sale leasebacks, and Bridge or term loans.This kind of financing is important since a firm should build an acquisition team that determine the structure of financing that will be required to support an acquisition at any requested price, as well as the ability of the new company to meet these financial obligations in the future.
.In order to finance the assets and cash flow of M&A practice, the firm must properly structure the transaction by using leveraged financing that includes:1) Revolving lines of creditRevolving Line of Credit is type of M&A financing that intend to assist business in short-term financing needs. These solutions provide the firm with funds for their day-to-day business operations.2) New private equity placementThe Private Equity Placement Model occurs in already-completed multi-year financial forecast. The purpose of this model is to estimate the “pre-money” and “post-money” value of a business.
The particular advantage of private equity is it helps enterprises to use the finance for developing new product and technologies and acquisition financing while resolving ownership and management issues.3) Equipment leases or sale leasebacksThis is a new approach for a business when a firm needs to raise quick capital. The sale of an asset for cash in which the asset remains on the seller’s property with a contract to lease the asset back from the source purchasing the asset.4) Bridge or term loansBridge Loan is a short-term loan that is used until permanent financing is affordable. Therefore, this loan becomes a perfect solution for a business merger and acquisition (M&A) since it helps a firm investors to act quickly.
Bibliography Bridge Loan Funding. Hyland Financial Group. L.
L.C. [Online] Available at: www.hylandfin.com/searchCIBC Revolving Line of Credit.
CIBC. [Online] Available at: http://www.cibc.
com/ca/small-business/loans-lines-of-credit/revolving-line-of-credit.htmlConyon, Martin., Girma, Sourafel., Thompson, Steve., Wright, Peter. 2004, ‘Wages Rise or Fall Following Merger’, Oxford Bulletin of Economics & Statistics, Vol. 66, No.
5, pp. 847-862Corporate Finance Network. Private Equity Placement Model, [Online] Available at: http://www.corpfin.
net/h/demo/pplace.shtmlEquipment Sale and Leaseback. Business Finance.com. [Online] Available at: http://www.
businessfinance.com/Equipment-Sale-And-Leaseback.htmEVCA. 2001, ‘Private Equity Europe’, [Online] Available at: http://www.altassets.net/casefor/countries/2001/nz3284.phpFleet Capital.
2001, ‘Primary Reasons Why Some Mergers & Acquisitions Fail’, [Online] Available at: http://www.fleetcapital.com/resources/capeyes/a05-01-29.
htmlFruhan, William E. 2006, ‘The Role of Private Equity Firms in Merger and Acquisition Transactions’, Harvard BusinessGradschool.com. 2007, ‘Timeline for DBA Dissertation Project’, [Online] Available at: http://www.gradschool.
com.au/Gradschool/resources/File/Timelines.pdfKotelnikov, Vadim. 2003, ‘Mergers & Acquisitions’, [Online] Available at: http://www.
1000ventures.com/business_guide/m_and_a_main.htmlLancaster University. 2007, ‘How to prepare a research proposal’, [Online] Available at: http://www.lums.lancs.ac.uk/PhD/PhDproposal/