Sample Business Studies Paper on Small Business Mergers and Acquisitions

SMALL BUSINESS MERGERS AND ACQUISITIONS

Abstract

Many small business organizations prefer using mergers and acquisitions as a method of salvaging their businesses that are about to go extinct. Others use it as a means of gaining control over another business. These firms need to know the right steps to take in order to be successful in the process. They also need to adopt the right valuation methods and procedures so that they can end up with the right business. Research shows that there are ten important steps for firms to follow during the process of merger and acquisitions. They also need to use the available eight methods of valuation approaches for businesses in mergers and acquisitions in order to end up with the right type of businesses. This paper examines all these steps and methods in an in-depth manner to help the firms know exactly what they need to do.

Steps Involved in Mergers and Acquisitions of Small Businesses

Background

Small businesses refer to those companies that have fewer employees than hundred. Some countries have their own methods of categorizing businesses as either small, medium sized or large business organizations. Mergers and acquisition refers to a combination of two businesses that were formerly operating individually to start carrying out business activities as one (Miller 2011). Many small business ventures would like to acquire other businesses and operate in a merger and acquisition basis, but they encounter various obstacles.

Steps in mergers and acquisitions

The first impediment that the organizations face is the ability to acquire or merge with other small firms in a troubled economy. Aside from this, many owners of companies that would wish to acquire other businesses also lack the knowledge of appropriate steps to take in the process. Apart from being able to know the steps involved in mergers and acquisitions, they should also be able to carry out effective evaluation of the businesses that they want to work with. Evaluation is important as it provides all round information about the business, and its operations.

An article written by Snow (2011) indicates that there are ten steps for small business owners to follow so that they can make successful merger and acquisition processes. The first step is to make a list of targeted buyers and sellers. Secondly, the firm should communicate with the targets through phone calls or one on one visit to their premises. The business should receive or send a teaser, which if a document that has the right information about the business that the buyer or the seller would like to know. Both the firms agree to keep the conversations about the merger and acquisition process confidential by signing a confidentiality agreement. The firm should receive or send a confidential information memorandum (Snow 2011). This document tells the buyer everything about the organization. The information on the CIM includes types of products, history, customers, and any impending debts.

The sixth step involves getting the indication of interest (IOI) from a buyer, which expresses the buyer’s interest on sealing the deal. This also comes with valuation information instead of the exact price of the firm. After this step, the buyer and the seller conducts a management meeting in which the two parties meet face to face in an attempt to iron out any differences, and come to a concrete understanding (Snow, 2011). After this meeting, the firm may submit or ask for a letter of intent (LOI). They should then conduct due diligence, compose a purchase agreement, close the business deal and perform any post closing adjustment and integration on the business.

Valuation methods

Organizations may use valuation approaches for mergers and acquisition businesses to ensure that they acquire a business that is still at the top of its operations, or one that can be salvaged by using effective business tools such as human resources or marketing. The seven steps of valuations include discounted cash flow approach. This method values the company by calculating its present value over its life (University of Virginia 2010). A firm may valuated using market multiples of peer firms approach, which is a method of valuing the firm based on similar publicly traded companies. Book value method of valuation refers to the estimation of a company’s worth based on its ongoing accounting procedures and is suitable for firms without intangible assets.

Liquidation value method is an approach for calculating the price of a firm based on the sale of its assets. It is suitable for companies with financial distress. Replacement cost approach, is the method that values a firm based on its current worth especially during inflation period. Market value of traded securities is a method used by estimating equity of the firm’s stock price multiplied by its outstanding shares in the industry (University of Virginia 2010). Finally, comparable transaction multiples refers to valuing the firm based on the numbers of its transactions per given business period.

The methods of valuation are deemed important to any business that wants to enter the merger and acquisition process because it reveals the types of operations that the intended business deals with. The buying business will know the type of business they are taking or are about to collaborate with in terms of finance, debts, and methods of operations. They are able to know the clients from the organizations, what the clients like and how they behave during business hours. Such information is very important as it makes it possible for the buying organization to know how to handle the customers in order to maintain and both lose them. Valuation procedures reveal other factors such as the types of human resource in each firm, what the human resources likes and the type of leadership styles that works for them. The firms also know how to motivate their new employees to ensure that they perform optimally. For the case of collaborating companies, they will be able to work out a common ground on how to approach employees from each side with the aim of ensuring that each firm gains from the collaboration

It is worth noting that mergers and acquisition are usually not easy to achieve, especially when one company inherits another firm together with all its employees. This is because they must learn the new employees, work out how the firms can work together for profitability and how they can harmonize their collaboration to fit each side of the firm

Aims and Objectives

            The aims and objectives of the study are to find out the steps that small businesses have to go through before they can be involved in any merger and acquisition. The study also aims at looking at the methods of valuation that can be used by small businesses during the process. It also states the type of documents that the firm must have during the merger and acquisition process.

Research Question

Based on the above background, aims, and objectives, the following central research question is formulated: “what steps and procedures can small business owners use  in the process of merger, acquisition and evaluation procedures?

The central research question will be answered through the following sub-questions:

  1. What are the ten steps involved in small business merger and acquisition process?
  2. What methods can these firms used to evaluate their target businesses?
  3. Why are the steps in 1 and 2 above important for the merger and acquisition process?

Theoretical Relevance

            Research done by Miller (2011) has provided proper explanation of the processes or steps that small business firms needs to take during mergers and acquisitions. On the other hand, University of Virginia (2010) also provided and in-depth study and explanation of the various approaches that firms may apply for evaluating other companies during mergers and acquisitions. These two documents offer effective reading in these two areas.

Hypotheses 1: Proper knowledge of mergers, acquisitions, and valuation steps has positive impacts on the process for small business organizations.

(X) – steps in merger and acquisitionis positively related to (Y) – the acquisition process

Hypotheses 2: the knowledge of the valuation method of small business mergers and acquisition is important for firms that want to be involved in such procedures. The mediator for this section refers to the steps to be take in merger and acquisition procedures

Conceptual model

                                                        Hypothesis 1

Steps of merger and acquisitions  

        X                                                                                            Y

Knowledge of steps  
Success in mergers and acquisitions  

                                                         Mediator

                                                   Hypothesis 2

Methodology and data sources

Research Design

            The research intends to use a survey method of study to collect data for the research. The researcher will also use structure interviews and case studies to help in data collection and research stages. These three approaches are important to the researcher because they give in-depth information about the study. The main concern of the researcher is to collect reliable data that can be used for future references. The only way to perform this is by having a one on one interviews coupled with case studies.

Method Type Respondent Reason(s)
Survey             Focused          surveys   Firm managers   The smaller the number the higher the accuracy and reliability of resultsIt is anonymously taken and has higher chances of responses with reliable answers
Structured interviews        Non standardized face to face interviews    Managers and employs   For confirming survey resultsTo help structure survey questions betterTo provide more effective background information about the firm
Case studies     Single case   –   Makes it easy to define the actual caseProvides a rich background on mergers and acquisition in small business organizations

Table 5.1: Research design

Sample Strategy

The research intends to use the self-selection sampling strategy because it best represents the entire population. The study uses six firms that are involved in the merger and acquisition forms of business and five that are not operating in the same way. Random sampling is appropriate for this study because it will provide the researcher with an unbiased sample for the study. It will also provide the opportunity for the researcher to be fully engaged in the sample selection process as it provides more knowledge on how to handle the sample during the actual research phase. However, the sample will be based on convenience due to limited time, resources, assistance, and availability of the participants.

Technique Size Reason(s)
Self-selection through Random sampling     11firms One manager from each company and 7 employees from every firm     Provides a chance to interview all the selected participants in the sampleIt is less time consuming

Table 5.2: Sample strategy

Data Collection

Data will be collected by surveying the managers of firms involved in mergers and acquisitions. This will make it possible for the researcher to interview the managers in person and have an informed concept about mergers and acquisitions in small business firms. Further data will come from data triangulation and secondary materials such as books and business journals. Data triangulation will give more information on the history of mergers and acquisitions among small business organizations. This will also be used as a baseline for harmonizing the primary and secondary data. These two methods of data collection are important as it helps in closing the gap between old and new methods of merger and acquisitions in small firms.

Concept Definition Dimension Measure
Quantity of small businesses in mergers and acquisitions   The degree in mergers and acquisitions            Quantity of mergers and     acquisitions refers to the number businesses currently falling in this category (University of Virginia 2010)           The rate at which small businesses take part in mergers and acquisitions (Miller, 2011) –             –  – the number of mergers and acquisition firms – firms not in mergers and acquisitions       Use business journals to find out the number of M&As within the small business industry
                   

Table 5.3: Operationalization of Concepts

Data Analysis

            One of the best methods of analyzing the collected data is by using quantitative methods. This is because the survey strategy allows collecting quantitative data, which can be evaluated quantitatively using descriptive and inferential statistics. The collection of quantitative data resulting from the surveys will be analyzed using tests. Quantitative data also give a clear figure of the number of businesses operating in M&As

The collected data will also be analyzed based on its applicability and use by various organizations using descriptive and inferential statistics. The research will attempt to quantify the number of organizations that have used the steps stated in the theoretical section. The study will also find out their levels of success in the area.

Limitations

            Due to time constrains, it might be difficult for the researcher to reach out to many firms that actually use the procedures of business mergers and acquisitions. Secondly, it might be impossible to implement the procedures in upcoming firms due to lack of enough time. Lack of enough resources for the researcher to use may also pose challenges during data collection process and may limit the number of firms, stakeholders, and employees to interview. This will also reduce the number of case studies to be conducted. Therefore, this study will use a convenient sample randomly chosen to meet the constraints of time, assistance, resources, and availability of the managers. However, this will affect the internal validity of the results.

Research Quality Indicators

            The success of this research and its quality depends on its ability to find out all the necessary steps required by small businesses during mergers and acquisitions. The ability for firms to use these steps and methods successfully will indicate the quality of the research. The reliability and validity of the research will also provide quality indicators for the research. Validity and reliability of the data depends on the fact that the researcher used quantitative data collected through surveys and interviews with stakeholders and employees. Similarly, the success of the surveys, case studies and interviews adds to the quality of the data.

Outline expected outcomes:

Small business firms with the knowledge of the right steps to follow during mergers and acquisitions process always end up making the right decisions. Similarly, those organizations that know the effective valuation methods also wide up with the most stable businesses that can make profits for them. They are able to successfully merge and acquire the firms and uphold the organizational cultures, behaviors, and values that foster competitive advantages and profitability.

Provisional Table of Contents:

  1. Keywords and Abstract
  2. List of Figures and Tables
  3. Introduction

3.1 Conceptual Introduction

3.2 Aims and Objectives

3.3 Practical and Theoretical Relevance

3.4 Research Questions

3.5 Thesis Structure

  • Background: mergers and acquisitions steps for small business organizations
  • Background: valuation methods used by small business organizations
  • Background: success in organizations
  • Background: organizations that have used the methods and steps success fully
  • Methodology:

8.1 Research Design

8.2 Participants

8.3 Data collection

8.4 Data Analyses

8.5 Research Quality Indicators

  • Findings
  • Discussion
  • Conclusions and recommendations

11.1 Research Conclusions

11.2 Recommendations from Research

11.3 Recommendations for Future Research

  1. Glossary
  2. Appendices
  3. Bibliography

References

Miller, E., 2011. Mergers and acquisitions: a step-by-step legal and practical guide. New York, NY: John Willey & Sons

Sharman, T., 2011. Mergers and acquisitions from A to Z. New York, NY: John Willey & Sons

Snow, B., 2011. Steps of the M&A Process. Retrieved from http://www.dummies.com/how-to/content/steps-of-the-ma-process.html

University of Virginia., 2010. Methods of valuation for mergers and acquisitions. Retrieved from http://www.keyvaluedata.com/pdf/articleOfInterest/3513.pdf