Before any business entity reaches a final decision on whether to acquire additional property, there is need to consider both the pros and cons of such acquisitions. The hotel company in the US that is seeking to expand its revenue base by acquiring some hotel chains in Italy is being faced by several challenges that ought to be addressed before a final verdict can be made. Perhaps, it is vital to explore some of the general pros and cons of acquiring the hotel chain in Italy.
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To begin with, the acquisition will indeed enable the hotel company in the US to increase its market share outside the country. It is only through new markets that the revenue of the hotel company can be expanded. As the Chief Marketing Officer (CMO) of the hotel, my mantra has always been “the more products we can sell the better!” Moreover, the acquisition in Italy will lower the risks of new product development that the hotel company may face in the new market.
The acquisition will also boost the market power of the hotel company while operating in Italy. On the same note, stiff market competition can be reduced through such an acquisition. The hotel company will also be in a position to diversify its product offering in the new market.
Asset stripping can be used to gain positive value of the hotel chain in Italy. For instance, the hotel company in the U.S. will highly likely experience financial gain because the hotel chain in Italy seems to be characterized with a low price earnings ratio. The general condition or standard of the hotel chain can be improved in order to attract high revenues from clients.
Even though acquiring the hotel chain may lead to additional expenditure and eventual reduced revenue within the new acquisition, long term gains such as resources and competences cannot be ignored. In any case, the stakeholders of the hotel company expect the entity to expedite growth agenda especially through acquisitions.
While the above merits are welcome, acquisitions have their own disadvantages as well. For example, acquiring the hotel chain in Italy may occasion integration problems. We understand that the employees of the Italian chain of hotels are unionized and they also receive higher pay and numerous fringe benefits such as healthcare benefits, more time off and increased say on the operations of the hotel chain. This is not the case with the US employees.
Worse still, if the hotel chain is acquired, the employees will have to be retrained and their work shifts changed in order to improve performance and market presence. Furthermore, cultural differences between the US and Italy will be a major impediment in the process of acquisition. Sexual harassment and EEO legislations do not exist. Employees may end up resisting certain drastic changes.
Retraining employees and improving the condition of the hotel chain in Italy will definitely lead to high expenditure. Besides, employees will have to be unionized and also receive better pay and allowances compared to the case scenario of the United States. Even if thorough evaluation of the new acquisition is carried out well, negative financial consequences may be experienced in the long run.
From the above deliberations, it is apparent that the new acquisition in Italy may not capture attractive returns. In spite of the fact that the cost cutting measures may be employed, there are numerous financial overheads that must be addressed. For instance, capacity building and training of the new employees in Italy will not be a one-off process. It is expected to continue for a lengthy period. Hence, it will be cumbersome to materialize efficient cost saving measures.
Finally, we may be compelled to concentrate extreme managerial focus on the new hotel chain acquisition in Italy. This will largely jeopardize our stable operations in the United States. It is highly advisable to seek alternative and viable acquisitions elsewhere.