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Study Sample on Financial Analysis and Management

Answer :

Who are Mergers and Acquisitions?

Mergers and acquisitions generally prove beneficial to the company in their tough times. Multinational companies grow big and expand by signing merger and acquisitions deals with small companies. Business leaders find rationale in acquiring small firms that has positive prospects for future operations as regard with growth and sustainability (Krajewski, Ritzman and Malhotra, 2012). In financial terms, such deals bring synergy gain to the acquirer company and increase the value of investment of capital contributors. Report signifies the importance of mergers through the proposed deal of Glaxo Smith Kline, the renowned multinational firm in pharmaceutical industry, who is keen on undertaking diversification through diversification. As the potential acquisition target has to be identified by two firms engaged in the similar line of business, being Oxford Biomedica Plc and Skye pharma Plc. Critical evaluation of financial performance is being made involving assessment of their capital structure and current working capital along with financial ratio analysis (Alexander, 2001).

Identifying two potential targets and rational for such acquisition targets

Glaxo Smith Kline is more focused on delivering three strategic priorities which mainly includes means to increase growth, reduce risk and improve long term financial performance (Van Horne James, 2002). As a matter of strategic planning, company is continue to invest in key growth businesses including emerging markets, vaccines and consumer health care. Hence, two potential targets have been identified which are doing well in the pharmacy sector being Oxford Medica Plc and Skye Pharma Plc. GSK tend to increase value of shareholders fund by accruing synergy gain through mergers and acquisition. Both the potential acquisition targets have performed well in the past years and have positive prospects for future growth and sustainability (Vogel, 2010).

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Rationale for acquiring Oxford Bio Medica Plc: Company has a long term relationship with Sanofi, which is also a leading pharmaceutical company. In 2013, company signed deals with major pharma companies, Novartis and Glaxo Smith Kline. GSK has been given an option to grant non-exclusive license under LentiVector platform technology patents for the treatment of orphan diseases. Company is to be awarded with £ 71 million package of grant and loan funding from the UK government to aid in expanding manufacturing capacity and reduce cost per patient dose. Such keen consideration on future operations will add value to GSK 's operations and make it gain competitive advantage (Swayne, Duncan and Ginter, 2012).

Rationale for acquiring Skye Pharma Plc: Company has identified a key opportunity in the treatment of asthma by the combination of fluticasone and formoterol. For the upcoming year, company is keen to maximize revenues from approved and pipeline product candidates, by developing new products and technologies through own research and analysis and collaboration with partners and signing mergers (Eschen and Bresser, 2005). Hence, it can be said that company will support the acquisition with due diligence.

Importance of working capital and capital structure management in potential targets

It is often noticed that companies may be high on account of profitability and reserves but are short of liquidity, which sometimes lead to deployment of long term capital funds for short term needs and eventually lead erosion (Evans, 2000). In order to overcome such circumstances and prevent the firm from facing financial crisis, it is vital on the part of finance managers to effectively manage the working capital requirements. Working capital is also a measure of solvency. Banks and financial tend to provide finance easily to the firms maintaining effective adequate working capital. Unless the regular payments to suppliers and trade payables are ensured, smooth functioning of the business cannot be expected (Bowersox, Closs and Cooper, 2002).Acquirer Company prior to making acquisition among the potential targets must ascertain the liquidity and solvency position of the firms through reviewing working capital Mergers and acquisitions generally prove beneficial to the company in their tough times. Multinational companies grow big and expand by signing merger and acquisitions deals with small companies. Business leaders find rationale in acquiring small firms that has positive prospects for future operations as regard with growth and sustainability (Krajewski, Ritzman and Malhotra, 2012). In financial terms, such deals bring synergy gain to the acquirer company and increase the value of investment of capital contributors. Report signifies the importance of mergers through the proposed deal of Glaxo Smith Kline, the renowned multinational firm in pharmaceutical industry, who is keen on undertaking diversification through diversification. As the potential acquisition target has to be identified by two firms engaged in the similar line of business, being Oxford Biomedica Plc and Skye pharma Plc. Critical evaluation of financial performance is being made involving assessment of their capital structure and current working capital along with financial ratio analysis (Alexand

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