Complexity Of Merger & Acquisition: Order And Uncertainty

We are in an era of economic globalization and informatization, and the assets' flow and restructuring within one country or even globally in form of acquisitions, mergers and divestiture have become the mainstream in capital markets. However, the merger and acquisition (M & A) transactions in accordance with certain business rules and procedures cannot always be successful, and then, what factors affect the success or failure of corporate M & A transactions? Although there are numerous legal rules to regulate M & A transactions, as well as a large amount of M & A procedures, experience and cases, the process of M & As is full of unexpected things. Why there are so many unexpected things during the M & A transactions which have been done seemingly in proper order and in line with legal regulations and procedures? The existing M & A theory has not answer the question, but the complexity science can give reasonable explanation of these issues. This is the underlying reason why I use the theory of complexity science to study M & A transactions.Firstly, from the perspective of complexity science, a complex M & A system organized by the two parties and related stakeholders in the transaction is discussed. The system is an open system in stable operation and evolution according to certain purposes and rules, which is with diversity of complex systems, in multi-level nature, adaptive, nonlinear, evolution dynamics, in order, and with the uncertainty of all the characteristics of complex systems. The purpose, order and the uncertainty of the complex systems form the core of the complex systems.Secondly, M & A transactions are running under certain rules, and the rules make M & A transactions form a certain order structure. In addition to the national laws and regulations regarding M & A transactions for the protection of the effective operation, there are also many implicit rules with certain purposes and intentions. In this paper, the hidden order in M & A transactions are revealed from five perspectives, including self-organization, symbiosis, collaboration, organization and mechanism, and the entropy theory is used in the evaluation of the ordering in M & A transaction system. Examples have been showed that more complex in the system through cooperative relationships, the greater the complexity of the evaluation value, then the interoperability and complex characteristics, of the worse order.Next, from the main bodies in M & A transactions, trading and market environment, details is revealed in the discussing the uncertainty in negotiating M & A transactions, payment methods, potential third party involvement, decision-making actors, as well as the uncertainty in the social environment including local government, community, public opinion, market and religion, and in trading environment such as anti-monopoly regulation, industry regulation, political control, judicial decisions. A system diagram of the uncertainty in M & A transaction is created, and the system analysis from the perspective of complexity science show that the nonlinear interaction and the ambiguity have been the underlying causes of uncertainty in M & A transactions. The entropy theory is used to do a comprehensive evaluation of the uncertainty of M & A transaction system, which has proved that merit in M & A transactions is in direct proportion relations with the uncertainty, that is, the greater the merit power, more serious the system uncertainty; and the information entropy reduction help to increase the contribution in reducing the uncertainty of system operation.Finally, from the systems science and complexity science perspective, discusses are made to show the unity between the uncertainty and ordering in M & A transaction system. The fractal characteristics of the M & A transaction system is analysed, and a dynamic evolution model of the M & A transaction system is constructed. A variety of ways to overcome the uncertainty of M & A transactions is also discussed including effective use of expert knowledge systems, to control methods and skills of M & A transactions, to enhance security awareness, to choose the right time to increase the necessary information. Meanwhile, from the transaction mode and financing in M & A, and other related aspects, studies show that innovation has promoted M & A transactions as well as the mechanism in how the creation of new rules helps the transformation of the implicit rules.The innovative arguments in the paper include (1) M & A transaction is a self-organizing complex system with stable operation and evolution in according with certain objectives and rules; (2) M & A transaction has the characteristics of both open order and hidden order, and entropy theory is introduced to create an ordering evaluation model in M & A transaction system as well as a relationship map in the evaluation system, which make the explanation of the M & A transaction procedure more complete, clear and systematic; (3) the complexity science is introduced in the systematic study and comprehensive evaluation of the uncertainty of the M & A transactions, and meanwhile, the unity, evolution and innovation of the uncertainty in the M & A transaction system have been discussed.