How will investors and company support systems view the acquisition
Guided Response: Review the posts from your classmates and respond to at least two. Compare and contrast the points you and your classmates made regarding risk factors in acquisitions. Each response should have a minimum of 100 words.
Jordan DuVall
Mar 4, 2021 at 10:02 AM
Risk can be defined in financial terms as “the chance that an outcome or investment’s actual gain will differ from an expected outcome or return” (Chen, 2021). Additionally, risk is measured and related to losses and uncertainty. Like most people in the real world, investors and managers lean towards being risk-adverse rather than going in blind. Relating this concept to everyday examples, I would not take out more loans or looking at purchasing a new vehicle without knowing with certainty that I can afford it. Likewise, some people believe that owning a home is “cheaper” than renting, while the mortgage payment may be lower, other associated costs such as appliance repairs, renovations, etc. come out of your own pocket. In business, the concept is very much the same. Investors would be reluctant to take on additional risks in the face of uncertainty.
Although the mathematics behind risk and allocated investments have the potentially to grow businesses, I am indifferent about this as there is also the chance that growth is hindered due to the amount of debt and risk a company has. Companies should adjust its plan for risk by utilizing the risk-adjustment discount. Projects that hold a “normal” amount of risk does not change and does not teeter the normal risk of the company should be discounted at the rate of capital cost and investments that carry increased risk would be discounted at a higher rate (Block et al, 2019).
Companies can also account for risk by forecasting, but this becomes increasingly difficult as you progress further out into the future and uncertainty enters.
Managers should be aware of some risk factors that come into play with new business acquisitions including the impact on financials, the rationale and type of acquisition taking place. Will the new transaction increase revenue? Will it have an impact on the company’s profit margin and growth trajectory? These are important factors to weigh into this type of decision as this could affect the overall valuation (Comina, 2019).
How will investors and company support systems view the acquisition? Does it support the overall mission and vision of the company?
Analyzing and thoroughly discussing strategic clarity behind a business transaction can weigh on a decision at hand if it does not compliment the company’s mission (Allocca, 2016).
Deere and Company may face tough economic conditions simply due to the market they are in. The agricultural economy is greatly affected by instability and lack of construction activities. Additionally, currency translation could sway the decision-making process if Deere’s investments are international. Federal government programs assist agricultural companies with risk protection as agriculture is America’s most domestic and robust sector (Bakst and Wright, 2016). Maintaining a competitive edge is another important factor Deere and Co should consider by minimizing potential losses and create new ways to remain profitable (Baskt and Wright, 2016).
References:
Allocca, S. (2016, December 20). Here are the top 15 risk factors of mergers and acquisitions. Retrieved March 4, 2021, from https://www.cfo.com/ma/2016/12/top-15-risk-factors-ma/
Bakst, D., & Wright, B. (2016, September 8). Addressing Risk in Agriculture. Retrieved March 4, 2021, from https://www.heritage.org/agriculture/report/addressing-risk-agriculture
Block, S. B., Hirt, G. A., & Danielson, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com/Chen, J. (2021, January 28). Risk. Retrieved March 4, 2021, from https://www.investopedia.com/terms/r/risk.asp#:~:text=Risk is defined in financial terms as the,usually assessed by considering historical behaviors and outcomes.
Comina, S. (2019, June 26). 10 Factors To Consider When Making An Acquisition. Retrieved March 4, 2021, from https://www.entrepreneur.com/article/335720
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