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Overview of The Divestiture Scheme of a Business

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The divestiture is a strategy for the company to remove some of the assets under its current business portfolio. A divestiture often occurs when the business is underperforming. This helps to reduce the cost of operations, meeting the organizational efficiency and as such, the company is able to generate if funds. The acquisition refers to the strategy of corporate finance and management, buying other business entities to aid in the financial growth of the company. This is done without necessarily coming up with a new business. Acquisition and merging are the leading business for many companies that are making profits in their respective industries so as to diversify their products, reduce the inherent risks, market monopoly and to increase their revenues.

For this case, the company ought to engage in acquiring other entities. Economic and political aspects have globally facilitated the same encouraging corporate growth (Zhang, Ahammad, Tarba, Cooper, Glaister, & Wang, 2015). There are various strategies that make the rationale fit for this company. First, the company possesses both financial ($150 M revenue) and the operational synergy (more than 2000 employees). There is an economy of scale for the company and by acquiring another company, it will be vital in enhancing cost reduction, especially in sales and marketing, development cost, administrative costs, operational as well as the research cost.

Secondly, since there is enough market for the company, acquiring another firm means there will be increased market share, the firm increases in size leading to monopoly power, hence it has the ability to control the prices. Orlando stands to be among the most visited places and the future projection depicts an increase in the number of visitors.

Thirdly, the acquisition is pivotal in eliminating the product line issues. By buying the targeted firm, the company is in a position to enhance the resources available for its clients. By doing so, it will be in a position to balance, fill out or diversify its products. Finally, since the company has enough revenue ($150 million), there is a great need for diversification, both geographically and even in the product line. Diversification will help in reducing earning risks and challenges that might result from dependence on a single economy.

The financial synergies for the acquisition of this company stand to be high as noted in the stated financial breakdown. This is visible in the future projections due to the existence of a lower cost of internal financing as compared to the external factors. The company possesses different cash flow positions and has varied investment options enabling it to achieve a lower cost of capital. The company has an outstanding cash flow and therefore, needs to divert the funds to other ventures, thus creating more investment opportunities for a future increase. Investing from the other business will help in lowering the probable risks.

The acquisition might be in the same industry or from a different industry. These forms of acquisitions have various drawbacks. The acquisition is linked to short-term financial consequences due to the need for duplicate back office. Marketing of the newly acquired company must be prioritized and it should be clear that the expected profits will not be realized in the short term. Customer impact is another issue, in a scenario where the acquisition occurs takes place in the same industry segment, there is a tendency to increase the prices due to the absence of a formidable competitor. This decreases the customer choices hence weakening the bass upon which future profits are established.

The company experiences challenges in the integration of the companies due to the existence different corporate cultures. Additionally, the probable effect of layoffs which would have a long-term effect on company operations (Chang, Chang & Wang, 2014). There is also the administrative issue since the companies need to be effectively managed to avoid any potential drawbacks that occur as a result of poor leadership. If the acquired company is from the different market segment, then the number of human resources, customer services, information technologists and other administrative functions need to expand (Kansal & Chandani, 2014).

The fact that Orlando is one of the highly visited places increases the probability of expansion and business success. The company possesses luxurious vehicles suitable for ferrying visitors. It has a total of 940 taxis and luxury sport utility vehicles. These are crucial in the hospital industry. As such, the companies will be in a position to cater to the over seventy million visitors to the city of Orlando. The company can also expand its business by diversifying in the airline’s industry thus expanding its product line.

In summary, the company is in a better position to acquire other firms due to the growing number of the people in Orlando. The financial prediction for the state is growing. By having extra income (150 million in revenue), the company needs to diversify its products. This will help in reducing the risk factors. The acquisition process will ensure that the company is well established in its market segment and as such, will be able to effectively compete with other players. The acquisition has numerous benefits since the newly acquired company has its own established customer segment hence easing the process of product diversification and marketing. Acquisitions result in the increased growths and earnings. It also faciliitates the change of busness model and as such, a more beneficial approach can be pursued by the acquiring companies.

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Overview of the Divestiture Scheme of a Business. (2019, April 26). GradesFixer. Retrieved September 23, 2022, from
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