Non-financial risk assesment in mergers, acquistions and investments. Identifying sources of business risk in the ICT industry

Abstract

The number of company mergers and acquisition activities has increased dramatically the last two decades. The reasons for conducting these activities are many and the uncertainties of their results are high. To reduce the uncertainties when making an investment, merger or acquisition it is vital to do a thorough assessment of the risks involved with the activity. This thesis focuses on a speci c part of this risk assessment, namely the non- nancial risks. Mergers and acquisitions are done in almost all industries around the world and the reasons for and bene ts of these activities can vary between industries. We have chosen to investigate the risk assessment of non- nancial risks in the Information and Communication Technology (ICT) industry. The thesis aims at investigating what business characteristics, for companies in the ICT industry, that give rise to non- nancial risks that must be assessed when doing investments, mergers or acquisitions. Further on we present a risk pattern that points out what business characteristics that are the most important when conducting a risk assessment of non- nancial risks on companies in the ICT industry. From a literature study we nd evidence that ten di erent business characteristics are of key interest when targeting companies in the ICT industry. These ten characteristics are rm size, business phase, governance, market strategy, funding, innovation process, network dependencies, outsourcing, product properties and geographic location. Out of these ten we are able to distinguish four that are of most importance since they give rise not only to the highest amount of risks but also a ect parts throughout the entire company. The four characteristics that are of particular interest in the risk assessment process are: governance, innovation process, network dependencies and outsourcing. The common denominator for these four business characteristics are that they are all connected to uncertainties that a single company itself cannot completely control, but stem from its interaction with other actors. The four characteristics all deal with the interaction between a company and its eco-system and all risks can hence only be identi ed after a thorough risk assessment. We see clear connections between the importance of the four business characteristics and the strong globalization process that characterizes the ICT industry, and we propose that the risk assessment process is modernized to t with the current corporate environment. This Bachelor thesis is conducted at the School of Business, Economics and Law in Gothenburg on behalf of Bearing Consulting Ltd. Bearing Consulting Ltd is a London based consultancy rm with presence in UK, Sweden, Spain and South Africa. Bearing's core competencies consist of nancial and management consultancy including the due diligence process in investments, mergers and acquisitions. We want to thank our tutor at the university, Osten Ohlsson, as well as Magnus Fransson and J orgen Eriksson at Bearing Consulting for their support and feedback throughout the work with this thesis.