Sulevsky V. V.

Odessa National Academy of Food Technologies

Mergers and Acquisitions in developing countries

Enterprises are seeking for new sources of increasing value and competitiveness, and one of the most popular sources are mergers and acquisitions. Although mergers and acquisitions are the subject of many studies - mostly in finance, organizational behavior, strategic management and economic law - yet little explored the impact of mergers and acquisitions on the value of enterprises, especially in conditions of transformational economy.

In Ukraine, the processes of mergers and acquisitions are considered mainly based on theories of integration, but the peculiarities of the domestic enterprises market require modification of existing approaches to managing the integration process. All of this makes the study mergers and acquisitions and the impact of these processes on business value, especially for conditions of developing markets.

Thus the purpose of this article is the study of differences between developed and developing and impact of the market forming process to the mergers and acquisitions.

Mergers and acquisitions are an important area of company’s growth and an effective incentive to economy modernisation. Because of acquisitions enterprises pass to the possession of more effective owners and managers, as a result efficiency of assets using is increased, significant economic benefits is created for both investors and the economy as a whole. This effect can be observed in improving of the financial and productive performance of enterprises involved in mergers.

Mergers and acquisitions are popular way of strategic development for firms that expand their activity. Because it can provide faster and less risky access to markets, products, technologies, resources and management skills.

The processes of an enterprise association developed unevenly over the last century. As a result of systematic research several waves of intensification of companies integration are defined (Table 1). One can observe that the most active mergers and acquisitions took place during periods of growth as the global and national economies.

Table 1

The most important waves of activation of mergers and acquisitions
in XX – early XXI century

№	Years of mergers and acquisitions activization	Key features of the mergers and acquisitions process
1	Mid 1880s - early 1900s	Merger of enterprises is carried out mainly to get rid of competitors. The first question is about the government regulation and control of the business association.
2	Early 1920s - late 1920s	Joint efforts of companies weakened after the global economic crisis and creation of conglomerates for the military purposes.
3	Mid 1960s - early 1970s	For the first time formed point of view of export management skills. Companies with well-established management system may implement the management system to other businesses and thus improve their performance. Formation conglomerates mainly conducted on a commercial basis.
4	Early 1980s - mid 1980s	Wave of leveraged buyouts. Active activisation of horizontal integration, caused by weakening of the antitrust law.
5	Late 1990s - early 2000s	Acquisitions of high-tech enterprises. Integration of stability in a dynamic and uncertain environment.

In recent years the number of mergers and acquisitions increased explosively fast and is now an annual cost of the acquisition agreement is worth hundreds of billions of dollars, which also suggests propagation tool for business expansion (Fig. 1). Despite the popularity, according to [1] approximately 60-80% of all acquisitions fail to increase business value.

Fig. 1 The dynamics of the global M & A market*

*[2]

The most important factor influenced on the volume of mergers and acquisitions in the global economy was the global economic crisis. Much of the business has ceased to pursue a policy of expansion and was forced to cut investment or even to conduct withdrawals. According to UNCTAD, in 2009 the value of acquisitions fell by 40% and amounted to 249.7 billion dollars. USA [3].

The financial economic crisis affects the process of integration in two ways, on one hand the enterprises reduced the number of resources required for acquisition, while reducing the cost of business-targets enables the acquisition of promising enterprises for small price.

Unlike European companies most Ukrainian companies do not have enough experience in acquiring other firms. As a result, the probability of achieving the desired goal is much lower. Therefore, domestic enterprises should create their own approaches to mergers and acquisitions to minimize risks and increase the effect.

In general, at present time the Ukrainian mergers and acquisitions market is still at an initial stage. We can highlight the main stages of Ukrainian enterprise market development (Table 2).

Table 2

Stages of development of Ukrainian market of mergers and acquisitions

№	Years	Stage	Features
1	1991 - 1995	Privatization	Predominance selling state-owned enterprises
2	1995 - 1997	Post Privatization	Domination acquisitions in industries with low concentration of needs in the financial resources
3	1998 - 2007	Corporate	Formation of corporate relations in all sectors, strengthening of private ownership in Ukraine, intensification of foreign investment in all sectors of the economy
4	2008 – present	Current	Prevalence of speculative transactions consolidation

Among the features of Ukrainian markets that have to be considered when evaluating potential acquisitions are following:

1. Lack of stock market capitalization.

2. Lack of liquidity.

3. Lack of informational effectiveness:

● absence of information for investment decisions

● lack of long-term experience in a globalized market system,

● unequal access to capital market.

4. Aspects of the national system of corporate governance:

● non-transparent structure of corporate ownership,

● infringement of rights of minority shareholders,

● information about the companies is closed.

5. Possible risks for foreign investments

● no long-term investors;

● dependence on external trade and financial markets.

6. Inadequate regulatory framework:

● the probability of illegal purchase;

● practice of manipulating prices in the stock market.

It should be noted that if in the developed countries acquisitions often serves to achieve benefits by improving the efficiency of the joint venture, but in Ukraine the process of acquiring companies often guided by personal motives. As a result of detailed statistical information is missing, both on the parameters of the agreements, and on companies that took participation in these agreements. All this greatly complicates the study of successful acquisitions.

The experience of developed countries in the field of acquisitions and mergers can make a significant contribution to managing the integration of Ukrainian enterprises.

Despite these problems of markets should be noted that there are significant prospects for improving the efficiency of businesses markets. However, foreign investors should consider the possibility of absorption of Ukrainian enterprises in connection with the peculiarities of the market.

References.

1. Christofferson Scott A. Where Mergers Go Wrong / Scott A. Christofferson, Robert S. McNish, Diane L. Sias // McKinsey Quarterly – 2004. - №2. – С. 92 – 99.

2. Горбань С. И. Методология управления корпорацией в условиях реструктуризации: автореф. дис. на соискание степени доктора экон. наук: спец. 08.00.05 - экономика и управление народным хозяйством / С. И. Горбань; Московский университет МВД России. – Москва, 2009. – 58 с., включ. обл. и ил. – Библиогр.: с. 56–58.

3. World Investment Report 2009: Transnational Corporations, Agricultural Production and Development [Електронний ресурс] // United Nations Conference on Trade and Development: New York and Geneva, 2009. –С. 314. – Режим доступу до журн.: http://www.unctad.org/en/docs/wir2009_en.pdf