Proposal: Company merging

I am excited at the growth of our business within such a short time, thanks to all of our contribution towards the business activities involved. Owing to the recorded growth of the company, I suggest that there be an incorporation of a new partner into the business so that it operates a s a merger. Alternatively, we could acquire another firm in the industry so that we increase our market share and subsequently, profitability. Most of us may have contemplated expanding our capital base by perhaps issuing the shares of our company to the public. However, I am of a contrary opinion with regards to the Initial Public Offering, but instead support the combination of our business with another, owned by partners, who are nearly of a similar performance to our firm.

 An Initial Public Offering is a kind of offering to the public by firms in which they sell the stocks of their company to the public for a very first time in their history (Bragg, 2012). This is the procedure, which the company goes through to transform to a public company from a private entity. Most companies use IPOs to generate capital for expansion of their levels of operations and in a bid to trade publicly on the securities exchange counter. An IPO allows a company to grow financially because the shares and stocks are exchanged for financial gains paid to the issuing company.

However, some instances make mergers and acquisitions a better way to increase the levels of operations of firms. Some of those situations are when the governing laws do not allow the company under consideration to publicly issue its stocks and when the projected monetary returns of merging or acquisitions are higher than the level likely from IPO. This last point forms the basis of my argument that it is better, at least in terms of financial terms to merge with another partner to ensure that we rate fairly in comparison to our rivals in the market.

Below is my projection of our financial performance when we merge with another partner

A model showing the financial status of the firm after admission of the new partner:

	1st year	2nd year	3rd year	4th year	5th year
Revenue	$676, 000	$676, 000	$1,252,000	$1,252,000	$1,252,000
Expenses	$20,000	$20,000	$20,000	$20,000	$20,000
Profit	$656,000	$656,000	$ 1,232,000	$ 1,232,000	$ 1,232,000
Variation in Profit	0	0	$576,000	0	0
Cumulative profit	$656,000	$1312,000	$2,544,000	$3,776,000	$5,008,000

A model showing the financial status of the firm for the five years:

	1st year	2nd year	3rd year	4th year	5th year
Revenue	$576, 000	$576, 000	$1,152,000	$1,152,000	$1,152,000
Expenses	$21,000	$21,000	$21,000	$21,000	$21,000
Profit	$555,000	$555,000	$ 1,131,000	$ 1,131,000	$ 1,131,000
Variation in Profit	0	0	$576,000	0	0
Cumulative profit	$555,000	$1110,000	$2,241,000	$3,372,000	$4,503,000

 You will notice that in spite of the slight decline in the level of expense, the rate remains constant. As a company is growing, several changes regarding its financial income are expected to occur. Since our firm deals with the provision of services, it means that clients are the major reason for being in business. When the firms achieve the additional number of clients from six to twelve, the total revenue will automatically change, and so is the level of profits. The admission of a new partner is bound to affect the expenses ratio in any form. However, the total revenue will be very high a situation that will lead to higher profit of income. Most of the consulting firms always have a fixed amount of expenses yearly, and that will not change even upon admission of the new partner.

The uncertainty in the economic and regulatory environment in the business environment presents opportunities for the formation of mergers and acquisition as a strategy to increase market share and drive financial and operational efficiency. Merging or even acquisition deals with the sale, purchase, division and combination of various companies to increase the rate of growth without coming up with a completely new entity. The distinction between mergers and acquisition cannot be established in terms of the outcome because the economic desire in formation of the two is the same. A merger is a consolidation, in accordance to the existing law, of two entities into one whereas an acquisition is said to have occurred a firm that is more stable takes over another and formally runs it as the owner.

Whereas in merging the two firms form one and each exercises some degree of control over the post merger entity, an acquisition may be in part such that the firm acquires less than 100% of the other firm and therefore exercises control to the extent of the acquisition. Firms merge to increase market share in order to increase profit levels, and that is my hope in suggesting the merger between us and another partner. Serving a larger market will enable the post merger organization to enjoy economies of scale accruing due to high levels of production. Similarly, we will be able to save on costs by merging as demonstrated in the tables above, which are a comparison of the revenue levels, expenses, as well as the profit levels before and after the admission of the new partners.

 I may not have mentioned before that in selecting the partner to join hands in business with, we should consider the market served, as well as the line of products that he handles to ensure that we draw some benefits in terms of new markets that we will be able to tap by operating as one entity. Also recall the concept of economies of scale, as I have illustrated in the table after the partnership. There will be a reduction in costs incurred in our firm upon the formation of the partnership because we will be servicing more people using fewer resources than we did in future. The capital pumped in by the new investor will assist in increasing the speed and efficiency with which we serve our customers such that the profit margins will keep increasing as in the table above.

In merging, managers of the two firms expect greater efficiency of operations and an expanded market base that would yield higher profit levels to be reflected in terms of the annual profits. Managers have varying levels of expertise and when the two who are drawn from different educational and professional backgrounds are brought together, they are bound to increase the efficiency of the operations of the new firm to be formed. Our partnership with the new partner will not be restricted to any interested parties, but it will be imperative to ensure that the new entrant brings some value to the organization.