Companies have numerous options when determining how to meet their capital needs or when faced with a lucrative opportunity for expansion. Businesses must decide whether offering an initial public offering of stock, merging with another business, or acquiring another company presents the best option. Each method possesses its advantages, disadvantages, threats, and opportunities. In this case, the domestic purveyor of fine foods and wine, Kudler Foods, and the internationally recognized fine food and wine wholesaler, LaFleur Trading Company, face the decision as to what method of expansion suits their companies best. This paper discusses the initial public offering (IPO), merger, and acquisition methods of expansion for Kudler Foods and LaFleur Trading Company as well as the global currency risks of conducting business on an international level.
Initial Public Offering (IPO): Advantages and Disadvantages
First of all, the Initial Public Offering (IPO) procedure involves evaluation of business procedures, intense scrutiny by the Securities and Exchange
Commission (SEC), and consideration of the advantages and disadvantages. One of the most important financial benefits lies in raising capital. Financial resources gleaned from the IPO can fund research and development, fund capital outflow, or pay off current debt. Another benefit is an increase in public awareness of the company because an Initial Public Offering generally makes products visible to a new group of possible investors. An Initial Public Offering (IPO) can also establish an exit plan for owners; venture capitalists have used Initial Public Offerings (IPO) to benefit financially from corporations they built privately.
Conversely, businesses may rule out an IPO due to certain disadvantages. The top disadvantage is expense: IPOs can cost between $200,000 and $1 million and if the offering is not finalized and approved, the company loses that capital. Other costs related to IPO include legal and accounting costs, filing costs, travel costs, and printing costs. One other disadvantage involves the intense financial scrutiny businesses must allow in an IPO. The financial statement document discloses sensitive information about the business, which includes managerial transactions, executive benefits, and any previous infringement of the Security Exchange Commission laws. Additionally, companies considering IPO must also entertain the very real possibility of the IPO performing poorly, which brings more expense and could financially ruin the entire organization.
Mergers and Acquisitions: Advantages and Disadvantages
Mergers and acquisitions basically involve one company absorbing or taking over another. Since Kudler Foods and LaFleur Trading Company share so many similarities, a merger or acquisition between the two might benefit both organizations. A primary benefit of merging Kudler Foods with LaFleur Trading Company or the acquisition of Kudler by LaFleur lies in the legal simplicity and low cost associated with these two methods of expansion. Additionally, combining these two companies decreases competition in their respective marketplaces and gives both companies more financial power. Furthermore, the added financial leverage affords the merged corporations more investment opportunities and creates the potential for new relationships with other organizations (William, 2008).
However, one of the shortcomings associated with a merger is that a merger or acquisition must be officially approved by a majority of the shareholders of each company involved; attaining the required ballots takes extensive time and effort. Likewise, the finalization of a merger or acquisition requires...