In times of globalization and increasing competition there are a lot of new big challenges for companies and their chief executive officers (CEO). High cost pressure, new competitors and the desire for a growing shareholder value are the challenges of global competitiveness.
After exhausting all opportunities of internal optimization potentials the only way for many companies to grow or to ensure survival is to merge with other companies. The CEOs of the companies try to manage the growing requirements by extending the business portfolios or even acquiring whole companies. So in 2013 in Germany the number of Mergers & Acquisitions (M&A) was the highest for five years. A study of the Boston Consulting Group says that from 1988 to 2010 more than 26.000 transactions were realized. This figure confirms the high importance of that method.
But are M&A the panpharmacon to handle the changing global markets and to ensure the prospective success of the companies? If you have a detailed look at the results you can recognize that a large number of executed M&A did not satisfy the expectations or even destroy value. The risks are all too frequent just underestimated. Often the failure is due to information asymmetry of the acting partners. This effect is called the principal-agency-problem.
What is the reason for that and why do so many M&A fail? What are the real goals of the participants of such an M&A-process? Do all participants pursue the same objectives or are there maybe any other intentions in the case? The following assignment deals with the M&A-process in relation to the principal-agency-theory and shows some solution approaches to avoid bad surprises for all participating companies after an executed M&A-process.
Inhaltsverzeichnis (Table of Contents)
- Preamble
- Introduction and problem
- Procedure and goal
- Basics
- Definition of Mergers & Acquisitions
- Definition of principal-agency-theory
- The principal-agency-theory in M&A
- Hidden characteristics
- Hidden intention
- Hidden actions and information
- Solution approaches
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to analyze the Mergers and Acquisitions (M&A) process through the lens of principal-agency theory. It seeks to understand why many M&A deals fail to meet expectations, focusing on the information asymmetry between parties involved. The paper explores solutions to mitigate the risks associated with this information asymmetry.
- The high failure rate of M&A deals.
- The role of information asymmetry in M&A failures.
- The application of principal-agency theory to the M&A context.
- Potential solutions to address principal-agency problems in M&A.
- The impact of global competition and cost pressures on M&A activity.
Zusammenfassung der Kapitel (Chapter Summaries)
Preamble: This introductory chapter sets the stage by highlighting the increasing challenges faced by companies in a globally competitive market. It emphasizes the rise in M&A activity as a response to these pressures, yet also notes the surprisingly high failure rate of such transactions. The chapter introduces the central problem of information asymmetry (the principal-agency problem) as a key factor contributing to these failures and frames the paper's objective to explore this issue and potential solutions. The authors outline their approach, focusing on specific sub-areas due to space constraints.
Basics: This section provides essential definitions for understanding the subsequent analysis. It clarifies the meaning of Mergers and Acquisitions (M&A) within the context of corporate strategy and growth. Crucially, it lays the groundwork by defining principal-agency theory and establishing its relevance to the M&A process. The section is fundamental in providing a shared understanding of the core concepts that will be examined in detail throughout the remainder of the paper.
The principal-agency-theory in M&A: This chapter delves into the core of the paper, applying principal-agency theory to the complexities of M&A transactions. It examines different facets of information asymmetry, such as hidden characteristics, hidden intentions, and hidden actions and information, all of which can lead to unfavorable outcomes for involved parties. The discussion likely explores how these information gaps can create conflicts of interest and ultimately lead to failed M&A deals, emphasizing the significant consequences of these discrepancies.
Solution approaches: This chapter shifts from problem analysis to potential solutions. It explores various strategies and mechanisms that can be implemented to mitigate the risks associated with principal-agency problems in M&A. These strategies might involve improving information transparency, aligning incentives, enhancing monitoring mechanisms, or employing other techniques designed to address the information imbalances that so often plague these complex business transactions. The chapter's significance lies in its practical implications for improving the success rate of M&A.
Schlüsselwörter (Keywords)
Mergers and Acquisitions (M&A), Principal-Agency Theory, Information Asymmetry, Corporate Governance, Strategic Management, Deal Failure, Value Creation, Risk Management.
Frequently Asked Questions: A Comprehensive Language Preview of Mergers & Acquisitions Through the Lens of Principal-Agency Theory
What is the overall topic of this paper?
This paper analyzes the Mergers and Acquisitions (M&A) process through the lens of principal-agency theory. It focuses on understanding why many M&A deals fail and explores solutions to mitigate the risks associated with information asymmetry between parties involved.
What are the main objectives of this paper?
The paper aims to examine the high failure rate of M&A deals, the role of information asymmetry in these failures, the application of principal-agency theory to M&A, potential solutions to address principal-agency problems in M&A, and the impact of global competition and cost pressures on M&A activity.
What are the key themes explored in the paper?
Key themes include information asymmetry (hidden characteristics, intentions, and actions), principal-agency conflicts, the application of principal-agency theory to M&A, and strategies for mitigating risks and improving the success rate of M&A deals.
What topics are covered in the "Basics" chapter?
This chapter provides essential definitions of Mergers & Acquisitions (M&A) and principal-agency theory, establishing the fundamental concepts for the subsequent analysis.
How does the paper apply principal-agency theory to M&A?
The paper examines how information asymmetry (hidden characteristics, intentions, and actions) within the principal-agent relationship in M&A transactions can lead to conflicts of interest and ultimately failed deals.
What solution approaches are discussed in the paper?
The paper explores strategies to mitigate risks associated with principal-agency problems in M&A, such as improving information transparency, aligning incentives, and enhancing monitoring mechanisms.
What is the structure of the paper?
The paper is structured into a preamble (introduction and problem statement), a section on basics (definitions of M&A and principal-agency theory), a section on the application of principal-agency theory to M&A, a section on solution approaches, and a conclusion.
What are the key takeaways from the chapter summaries?
The preamble highlights the increasing challenges in a global market and the high failure rate of M&A deals. The "Basics" chapter establishes foundational definitions. The chapter on principal-agency theory in M&A examines information asymmetry's role in deal failures. The "Solution approaches" chapter proposes strategies to improve M&A success rates.
What are the keywords associated with this paper?
Key words include Mergers and Acquisitions (M&A), Principal-Agency Theory, Information Asymmetry, Corporate Governance, Strategic Management, Deal Failure, Value Creation, and Risk Management.
What is the intended audience for this paper?
The paper is intended for academic use, focusing on analyzing themes in a structured and professional manner. It's likely targeted towards researchers, students, and professionals interested in corporate finance, strategic management, and M&A.
- Quote paper
- Tobias Marsch (Author), 2015, Principal-Agency-Theory in Mergers and Acquisitions, Munich, GRIN Verlag, https://www.grin.com/document/302640
