UK Starting Business

The takeover target saw that through a merger they could increase their capital base and thus their competitiveness for institutional business.

They were successful in accomplishing this as they were provided with the necessary equipment and sufficient financial freedom for the task. It is however over the preceding seven months where the advantages of having a parent company have really come to the fore.

In a time when revenues are low and are exceeded by overheads, financing is needed in order to carry the company through the bad period to when it can earn enough to cover its costs. This period, however, could be longer for the Canadian Bank1s securities arm than for many other firms due to its higher than average overheads.

The main problems created by the merger were those due to the different cultures of the stock broking and banking industries. In order for the amalgamation to have been successful, the new owners of the takeover target needed to have or acquire an adequate understanding of the stock broking business.

This understanding at least in part was lacking as seemingly only a very short term view was adopted by the parent. The present problems which were now being encountered by the firm hove largely resulted from this.

Very few predicted the October stock market crash but the majority of City Analysts agreed that the then buoyant conditions of the Big Bang period would come to a halt sooner or later as another recession came closer.

Thus long term investment planning was required in guiding expenditure through the predicted lean period of market inactivity. It is, therefore, perhaps questionable whether or not the parents fully comprehended the forthcoming problems which its subsidiary would face in inactive conditions or even in an average trading atmosphere.

As shown in the results, behavioural problems now exist with the company (caused as a direct result of the problems highlighted above). Many of the employees of the company, the dealers, researchers and analysts were unsure of their future with the company.

This insecurity does not result in avid concentration or motivation at work.

Through the great expenditure of the firm, cutbacks are now imminent and perhaps has resulted in distrust for the management or at the very least - a far from perfect working atmosphere.

An advantage gained from the merger was an increase in the company’s ability to compete (this does not necessarily mean at a profit). Having a large amount of financial backing is important when attempting to hold on or gain new institutional clients.

The equipment providing (although expensive) did enable the firm to execute its business efficiently which again is an advantage when seeking new clients. A different kind of efficiency, however, was absent due to the lack of volume business necessary to utilise all of the company’s resources.

The merger thus presented the company with problems and both are still present in its operation t the time of the interview. It could be argued that the advantages (the vast expenditure on equipment and facilities) are not so great when it is considered that the majority of stock broking offices have similar equipment (although perhaps not as extensive).

However, the cost of these overheads provides the company with a big disadvantage when profitability becomes the important criteria. It is reasonable to say that only two other broking firms have higher breakeven points than the company’s stock broking arm (who have the third largest dealing facilities in Europe).

If the argument is correct, the company will have marginal advantages in an active market situation but substantial disadvantages in slump conditions.