The paper 'The Performance of Galaxy Pharma Manufactures Acquisition' is a great example of a Management Case Study. Most pharmaceutical firms have turned to acquisitions and mergers as the only way of solving the challenges encountered. Mergers and acquisitions have been used as ways of restructuring by numerous firms since the last half of the 19th century. The deal value is Japanese Yen 102,000 million to be paid in cash. Galaxy Pharma manufactures various types of branded generic drugs and other healthcare products. In the previous year, Galaxy had operating income of Yen 4,551 million, fixed assets of Yen 8,337 million, and current assets of Yen 30,250 million (40% of which is cash). Overview of Acquisitions The main motivation behind most mergers and acquisitions is the probability that the profits that are made by the entity that is merged will exceed the profits that were made by the merging entities individually (Mascarenhas, 2011).
Acquisitions and mergers allow the entities that have merged to make more returns than their original individual incomes with the same resources. This situation is called synergy. The enhancement of revenues as a result of either a reduction in the average cost or a general increment in revenues (Myles, 2006).
The synergies can only arise if the merging entities are able to use their production capacities more effectively. To realize such benefits, the acquisition of Galaxy Pharma manufactures entity Vibrant Ltd has to rationalize, develop a system of sharing information and at times relocate or move people, rebrand and redesign its marketing strategies and co-ordinate all the functions that are within the entity that has been merged (Depamphilis, 2007). Due to increased competition in the markets, most entities have opted to either merge or acquire other organizations to the detriment of innovating.
This has helped them to reduce the competition for the resources and markets that are available by sharing the markets and resources of each of the merging entities. The performance of Galaxy Pharma manufactures acquisition The performance and effectiveness of the acquisition of Galaxy Pharma manufacture by Vibrant Ltd depend on various factors. Myles (2006) in the article a paradox of synergy analyzed the effects of the acquisition.
The article discusses the existence of contagion effects. The contagion effects of a merger and acquisition as a very crucial pointer that should be assessed in order to identify whether a merger or an acquisition is effective. Even if a merger or acquisition is effectively planned and executed, the contagion effect can destroy the overall productivity or value of a merger across the merged entity. This indicates that some levels of destruction are inevitable during acquisition, that is, there is a value that will definitely be lost as a result of mergers.
Due to these effects and the fact that there will inevitably be a destruction effect, the benchmark is important to when a business is assessing the strategies for forming a merger or when it is planning to acquire another firm. Another key aspect that should be taken into consideration before making an acquisition or before evaluating the effectiveness of an acquisition is the fact that the contagion and capacity effects increase with the variance of the merging firms’ independent profits streams. This is the main reason why the value of the destruction of a merger varies from one firm to the other.
For instance, mergers and acquisitions between firms in industries that are not fully grown lead to higher levels of destruction mostly due to the higher levels of uncertainties that can be associated with the firms in such industries. This is in spite of whether the acquisitions plan of Galaxy Pharma manufactures by Vibrant Ltd was well-formulated and implemented. In addition, there exists a need to assess the good performance of Galaxy Pharma manufacturers before concluding on the overall success of acquisitions.
This is because the effects of the merger by the firms may have been overshadowed or may have been equaled by the performance of the firms individually had they not merged in the first place. Myles (2006) points out that in such cases, attributing positive outcomes to such a strategy may lead to misinformed learning and as a result lead to future decisions on mergers and acquisitions being misinformed and wrong. The existence of the capacity effect will offer Vibrant Ltd the explanations for the reasons take too long to realize the fruits of and the advantages of mergers and acquisitions.
The delay in taking advantage is a result of the merging firms being closer to their capacity constraints and therefore the firms have to expand their organization before they can each benefit from the new environment as merged entities. As have been shown above the measurement of the performance of mergers is complex. It is important to note that most mergers are seen as successful at face values but a firm may have lost more value by merging and may have as a result has been better off had it not pursued acquisitions or mergers in the first place. Effects of acquisitions of Galaxy Pharma manufactures by Vibrant Ltd When the organizations or entities merge, they are most likely looking for the best way out of their challenges.
Some of the c there is a very high chance that there will be a negative challenge that could lead to either a merger or acquisition are flooding of the market, the inadequacy of recourses or, failures in the market (Gregoriou & Renneboog, 2007).
When an entity acquires another entity, there is a very high chance that there will be a negative effect on innovation since the time, and resources that are provided towards innovation (Post, 1994). Mergers and accusations are known to offer a very good alternative to creativity and innovation to the organization in crisis (Internat the organization will have a bigger pool of Labour Organization, 2003). When an organization agrees to merge with another in an attempt to solve their problems, they have their challenges sorted out. The other way to sort these challenges out was to come up with creative ideas that help to solve these challenges.
Although at times mergers and acquisitions are seen as the best ways due to the synergy that they bring, they can be seen as a way of avoiding the real challenge rather than tackling it as it should be. Most people argue that mergers and acquisitions are the best way of ensuring the growth of the organization. As much as this could be true, there are some very valuable lessons that the companies do learn through their journey trying to achieve growth.
Some of these are ways of solving some organizational challenges that are encountered along the way (Brito & Catalão-Lopes, 2006). When an organization merges with another; there is a big chance that some of these challenges that are faced o the way up are not experienced. Some of these challenges are solved through creative and innovative strategies, which are also later very crucial when it comes to running the organization. For these reasons, when an entity is involved in a merger or acquisition such challenges are not encountered leading to a lack of a platform for creativity and innovation. Another challenge that comes in after either an acquisition or merger is the failure to bring out the potential of the synergy as expected (Karenfort, 2011).
For example, during the first merger wave, most companies failed to achieve the best of the potential as it would have been required. Probably there are some of the resources that are brought up fail to get the optimum level of productivity as anticipated or expected (Cassiman, 2006) A reduction in the allocations of time and other resources for research and development reduces the innovativeness and consequently the competitiveness of the merged entity.
The merged entity performs less than optimally because of this situation. Optimal performance would be a situation where the merged entity performs better than the sum value of the combined output of all the merging firms. Conclusion A manager’ s commitment to innovations is dependent on various aspects and is directly affected by the management’ s choice to pursue acquisitions and mergers. One of the major reasons why managers choose acquisitions and mergers rather than innovation is the risk inherent in pursuing innovation and the tradeoff between resource allocations.
Resources are limited and there is always a need to allocate such resources in an investment that has the least risk per expected returns. Therefore, when managers are faced with the need to allocate the limited resources between innovation and mergers they instinctively choose mergers or acquisitions because they have a lower risk compared to innovations.
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