Choice Hotels Merger Analysis

It is more likely that the large equity firm will acquire Choice Hotels based on the assessment of the financial performance of the company in comparison to Marriott International. It is imminent that an investor would seek to ensure that an investment guarantees stability, profitability and a higher return on the invested amount (Euromoney Trading Ltd, 2017). From the assessment of the financial ratios, Choice Hotels has a higher earning power, returns on assets, profit and operating margin ratios as compared to Marriot International. Also, the change in Choice Hotel’s operating and profit margin is a negative one and positive one percent respectively as compared to Marriot International’s change in operating margin by negative 14 percent and the profit margin by negative 23 percent in 2016 from the ratio recorded in 2015. Also, the basic earning power ratio of Choice Hotels fall by 9 percent in 2016 compared to the figure in 2015 while Marriott Internationals ratio declined by 75 percent over the same period. Here, it is evident that Choice Hotels is more attractive to the large equity firm which is presumed to be seeking a stable and profitable venture to invest.

Current Choice Hotels Investors

            The acquisition of Choice Hotels by a large equity firm will indicate that the existing investors in the company will lose the control of the company. The voting rights of the investors of a company reduce as the acquiring firm takes more than half of the control of the company (Ibrahimi, 2018). The decision making of a company shift from the current investors to the acquiring firm and the absolute control is lost (In Cooper & In Finkelstein, 2017). Also, the current Choice Hotel Investors will experience a possible reduction in the individual earnings from the firm as the shares will be sold to the controlling firm which will take a higher proportion of Choice Hotel’s declared revenues.

Respond to Colleagues’ Original Discussion

            It is evident that the decision making regarding mergers and acquisition is guided by an in-depth analysis of financial statements to ascertain a viable investment to pursue. In regard to my colleague's original discussions, the assertions that merging is guided by the levels of operations in a target company can be disputed as witnessed in the case of Choice Hotels and Marriott International whereby, financial ratios provided grounds for determining the desirability of an investment. Ratios provide reliable grounds for the assessment of the financial performance of a firm (ERP Environment (Firm), 2018). Here, the important lesson is that relatively large amounts of revenues, liabilities, equity or assets do not necessarily reflect a superior financial performance (Films Media Group,, & Seven Dimensions Films of Australia, 2015). The analysis of a company targeted for merging extends beyond the level of revenue collected to include the efficiency of a company in using equity and the available assets (In Salem Press, 2018). Also, in response to the effects of mergers and acquisitions, it is important to note that the current investors in a company lose the existing control in the event that a merger or acquisition occurs.

References

ERP Environment (Firm),. (2018). Business strategy and development. Hoboken, New Jersey: John Wiley,2018

Euromoney Trading Ltd,. (2017). Mergers & acquisitions. London : Euromoney Trading Limited, 2017

Films Media Group,, & Seven Dimensions Films of Australia. (2015). Mergers, Acquisitions & Divestments. Seven Dimensions Films of Australia, New York, N.Y. : Distributed by Films Media Group, 2015

Ibrahimi, M. (2018). Mergers & acquisitions: Theory, strategy, finance. Hoboken, New Jersey: Wiley, 2018

In Cooper, C. L., & In Finkelstein, S. (2017). Advances in mergers and acquisitions. Bingley, United Kingdom : Emerald Publishing Limited, 2017

In Salem Press, (2018). Principles of business. Ipswich, Massachusetts: Salem Press, a Division of EBSCO Information Services, Inc.: Grey House Publishing, 2018