Business Start-ups, Purchases, Mergers, and Acquisitions

Identify the advantages and disadvantages of purchasing an existing brokerage or franchise. You have a clearer idea of what you're getting into if you perform your due diligence. Advantage Disadvantage Lenders are more willing to finance you. Advantage Disadvantage You have to follow someone else's rules as a franchisee. Advantage Disadvantage

A A D Ultimately, the right decision is dependent on the individual who wants to be a business owner.

Under certain conditions, mergers and acquisitions make good business sense. Which of the following is NOT a good reason for a company to merge with or acquire another? Remember that growth and expansion are considered positive strategic moves. Combining forces of two companies that offer similar services will result in even better offerings. Merging will result in a combined company that's more competitive against a larger competitor. Acquiring a company will allow a well-established company to venture into a new market. Acquiring a company in decline will allow it to sell off assets and revitalize its operations.

Acquiring a company in decline will allow it to sell off assets and revitalize its operations.

As with most business decisions, there are pros and cons to mergers and acquisitions. Indicate if each scenario illustrates a pro or a con of mergers and acquisitions. The merger of ABC Company and XYZ Company allows access to new markets. Pro Con ABC Company discovered that XYZ Company lost a lawsuit five years ago. Pro Con ABC and XYZ kept their original names and need to invent a new brand. Pro Con

Pro Con COn

Which of these is a true statement regarding a transition plan in a merger? It's important primarily for external stakeholders. It's important primarily for internal stakeholders. It's part of the company's ROI. It can help ease the growing pains of the new, larger enterprise.

It can help ease the growing pains of the new, larger enterprise. Correct! How smoothly and quickly a transition occurs after a merger or acquisition depends in part on how well the transaction is positioned, both internally and externally.

The owners of Excellent Homes Real Estate Brokerage are looking to merge with a company to increase their company's market share. They're evaluating three companies for acquisition. Which of the following is the best candidate? Over 30 years, the owners of Company A have poured their hearts and souls into building a highly reputable brokerage. Now they're ready to retire. The policies, procedures, and management styles differ greatly from Excellent Homes. Company B is one of the top brokerages in the region. The owners are motivated to increase market share by consistently providing top-notch service. It has an organizational structure and open-door policy similar to Excellent Homes. Company C had a great start eight years ago, but the owners didn't have a contingency plan when the market sank two years ago. Now, it's in the midst of a financial crisis. To top it off, two lawsuits have been filed against it.

Company B is one of the top brokerages in the region. The owners are motivated to increase market share by consistently providing top-notch service. It has an organizational structure and open-door policy similar to Excellent Homes. Excellent! Company B is a like-minded company looking to go from good to great.

Broker-owner Mei is evaluating three companies to acquire as a strategic move to expand her brokerage. In addition to asking questions to determine each company's value, market presence, and motivation to be acquired, what else should Mei explore? Office decor Employee demographics Cultural fit Physical equipment

Correct! Mei will want to ask questions to determine what the culture is like to determine if it is a good fit.

What number is most often used to evaluate how much a business is worth? Fair market value Discounted cash flow Terminal business value Return on investment

Correct! Return on investment (ROI) is the most often used to determine how much a company is worth.

Identify the advantages and disadvantages of building your own brokerage from the ground up. It's likely to take a long time to become profitable. Advantage Disadvantage Financing can be difficult to find. Advantage Disadvantage You get all the glory and the money if the business is successful. Advantage Disadvantage

D D A

As with most business decisions, there are pros and cons to forming business alliances. Which of these presents a challenge to mergers and acquisitions? Access to new markets Increased financing options Additional resources Different business models

Different business models Correct! Access to new markets, finances, and resources are great perks of mergers and acquisitions. Some potential challenges include branding confusion, image issues, and cultural fit.

Assume for each of the scenarios, a merger has occurred. Which of the following situations will likely experience the smoothest transition? The companies were both stable on their own. They have different business philosophies and management styles. Their transition plan covers the general bases. They communicated the merger externally before making an internal announcement. The companies have similar organizational structure and business philosophies. The management of both companies collectively drafted a comprehensive transition plan and have provided advance notice internally and externally. The companies have similar goals and management practices. The skill sets of the staff differ greatly, so training is a part of the transition plan. Rumors of the merger began before it was announced internally. There has been no public announcement.

The companies have similar organizational structure and business philosophies. The management of both companies collectively drafted a comprehensive transition plan and have provided advance notice internally and externally. Absolutely! There's more work to be done after the deal is made.

What is the most common approach used to determine the value of a business? Terminal business value Fair market value Return on investment

You're right on the money! ROI is the most-often-used factor to determine how much a company is worth.