A Risk Management

A Risk Management Model

for Merger and Acquisition

B. S. Chui

Sage International Group Limited, Hong Kong

Abstract In this paper, a merger and acquisition risk

management model is proposed for considering risk

factors in the merger and acquisition activities. The

proposed model aims to maximize the probability of

success in merger and acquisition activities by managing

and reducing the associated risks. The modeling of the

proposed merger and acquisition risk management

model is described and illustrated in this paper. The

illustration result shows that the proposed model can

help to screen the best target company with minimum

associated risks in the merger and acquisition activity.

Keywords Merger and Acquisition, Risk Analysis, Risk

Management

1. Introduction

Driven by globalization, international business looks for a

bigger market to achieve the scale of economy, so as to

overcome the economic barriers. Many organizations

adopt merger and acquisition (M&A) as a part of their

corporate strategy to achieve their business objectives.

M&A is a kind of transaction that can upgrade and

optimize the capital structure of companies with a

transfer of ownership and property rights. M&A has

already been developed with one century of history in the

world and give rise to merger and acquisition waves over

the world sixth times since the 1990s. Benefits of M&A

include increased economies of scale, increased market

share, enhanced efficient resource allocations, expanded a

larger asset base, increased reputation or added name

recognition, and instantly adopted expert talent lacking

International Journal of Engineering Business Management, Vol. 3, No. 2 (2011)

37 International Journal of Engineering Business Management, Vol. 3, No. 2 (2011)

Vol. 3, No. 2 (2011) ISSN 1847-9790, pp 37-44

in one to the other organization. Moreover, organizations

use M&A to penetrate into new markets and new

geographic regions, gain technical/management...