Mergers and Acquisitions Risk Modeling

Abstract

In the context of the dynamics of the modern external environment, the importance of risk management in general and the risks inherent in the processes of mergers and acquisitions has sharply increased. This is becoming one of the primary challenges in business, the solution of which will contribute to economic growth and development. In this article, based on a broad review of literature, the key risks of mergers and acquisitions are identified and classified, the level of their significance is assessed, the relevant management tools are selected for each risk and a computer program is developed that implements the selection of tools for each specific merger and acquisition transaction. A comprehensive automated methodology for the selection of risk management tools in the implementation of mergers and acquisitions can become an effective risk management tool for companies participating in such transactions. This will allow to identify and track risks in a timely manner, assess their significance, and, among other things, contribute to the adoption of effective management decisions regarding risk management.

Using financial modeling to trade-off between financial strategies

“…The failure to conduct an accurate and clear assessment to identify key employees, projects, operations, vital products, and the reality of financial conditions prior to the merger would lead to the failure of the merger process [26][27][28] .…”

“…External factors: Recession, economic collapse, or other crises and disasters that companies have no hand in can be among the factors affecting the poor performance of the merger and acquisition deal [27,28] .…”

“…Negotiation errors: When companies pay an exaggerated price to acquire another company, financial losses would usually occur and ultimately causing the acquisition deal to fail [28] .…”