THE IMPACT OF FINANCIAL RISK MANAGEMENT IN SUCCEEDING MERGERS AND ACQUISITION FINAL PROJECT

This study explored ways to manage financial risk and also risk management in a case of merger and acquisitions. The goals of this study is to 1.) To conduct a critical examination of financial risk management in the field of merger and acquisition, which contains assets calculation, financial analysis, market analysis, and project profitability, as well as the connections between these aspects towards the succession of undergoing a merger and acquisition process. 2.) Review the outcomes of the data analysis in order to reach conclusions and suggestions in the context of successability of mergers and acquisitions. The research strategy that is included in this paper are quantitative research and case study. One of the research strategy is by using a method by David S. Clifton & David E Fyfe from “Project Feasibility Analysis”. Another research strategy that will be used in this paper is the Failure Mode and Effects Analysis. The data collected by the researcher will mainly be coming from PT Indo Kaya Energi in a form of archival method, other than that, some secondary sources from articles and journals on the internet will be used in this research. The study demonstrates that the process of merger and acquisitions needs to be carefully examined, the reason behind this is because the researcher needed to analyze not only the financial statement from the company, but also analyze the market, assets and future project forecast cashflow as stated in “Project Feasibility Analysis”


INTRODUCTION
The procedures used to collect data and research it in accordance with a coherent system are referred to as methodology (Cai, 2018). Methodology offers a critical assessment of various research tactics and procedures. The research strategies allow for the formulation of a set of reasoning or processes for approaching the research problems (Chaney et al., 2020). This dissertation will be using a quantitative research, descriptive approach. For this research, we will be calculating assets, debts and liabilities, market opportunities, and the financial risk that it holds. The quantitative approach will later help us to determine whether financial risk management is important in the case of merger and acquisition.
The qualitative approach is not suitable for this research because simply we do not want a subjective view of the role of financial risk management in the mergers and acquisitions process. Qualitative view will not satisfy our research objective to calculate the financial risk and determine whether Role of Financial Risk Management In Succeeding Merger and Acquisitions importance.
This research will use methods that can be used to determine the financial risk by using the project feasibility analysis. Project feasibility analysis covers most of the aspects that a company needs to know for the ongoing of the merger and acquisition process. This includes market analysis, financial analysis, social profitability analysis and project financing. Thus, we will be using project feasibility analysis to calculate the financial risk for mergers and acquisitions by (Clifton & Fyffe, 1977).
The data for this research is provided from a company in Indonesia, PT Brothers Indonesia and PT Indo Kaya Energi .We chose the study case based on the topic that we will be discussing "financial risk management in merger and acquisition", the case study should include various aspects such as financial risk caused by liabilities, operation expenses, and project profitability that will need to be analyzed. We also have been using this method in our past projects of mergers and acquisitions, one being in the Indonesian companies between PT Indo Kaya Energi and PT Brothers Indonesia (Kennedy, 2018). Therefore, choosing this tool to help us calculate will be more familiar.
We will be using case studies and existing sources gathered from journals and books from the internet (Azlan et al., 2020). Depending on the sources the researcher utilizes, secondary data can be obtained more quickly and more economical, since there are limitations of financial expense. Secondary research can aid the researcher answer research questions.

RESULTS AND DISCUSSION
Looking for more investment opportunities, PT Indo Kaya Energi is looking to enter the geothermal industries. Indonesia is one of the highest geothermal producers in the world, number three to be precise, right below The United States of America and The Philippines at 1,197 Megawatt Tons. In addition to that, PT Indo Kaya Energi was incentified by being offered a project from Indonesian electricity company, Perusahaan Listrik Negara (PLN), to supply them with geothermal energy. There are problems however, PT Indo Kaya Energi is lacking experience and the equipment in the field of geothermal since they are mainly focusing in the oil and gas industry. This could be the supporting motive for undergoing merger and acquisition.

Figure 1
List of geothermal producers.

Assets Overview
This is where PT Brothers Indonesia comes in place, a SME company that worked in the geothermal industry for 8 years. Equipped with machinery and workers with enough knowledge and experience to undergo the project. PT Indo Kaya Energi's approach to enter the geothermal industry is to work with the company and or acquire them in the long term in order to expand expertise in other industries, creating the best possible outcome for the company. From table 1 we can see that PT Brothers Indonesia have a lot of assets, these assets might need some checking before getting moved and stored into PT Indo Kaya Energi's warehouse. Through observation we did in PT Brothers' warehouse, Cisauk, we found out some points that needed to be noted for continuing the project. These assets were bought in 2012 with a condition that is last time used in 2018, all these assets have not been currently tested for its compatibility for PT Indo Kaya's project. Regarding the vital assets such as the compressor and the booster needed to be repaired with the uncertainty of the spare parts being available. These two unrepaired core assets needs a running test from a third party which are a risk we need to be aware of.
Assets from PT Brothers needed additional fees to transport it to our warehouse in Citeureup, the crane that needed to lift them is a 30 tons crane (PT Indo Kaya Energi currently only have 16 tons compatibility) meaning that are additional charges for renting the crane machines. The estimated rent fees for the crane is approximately IDR 8,000,000 / 8 hours, and the crane can not be rented hourly, and will need to be rented two times for lifting the units in Cisauk and dropping it off in our warehouse in Cileungsi.

Figure 2 Total space needed for PT Brothers Indonesia main assets
Figure 2 showed us the spacing area needed for these units to be able to fit in PT Indo Kaya Energi's warehouse is approximately 1000 square meters, which is a fit to our current inventory. The spacing information for the units is shown above. Looking at Table 2 of the financial expenses, most of PT Brothers Indonesia's equipment needed to be repaired and recertified, the expenses piled up to one billion rupiah (USD 69,500), this includes buying spare parts for the machinery, building custom parts, testing and recertification. It will add additional USD 34,700 to the expense for office equipment, supplies, and salaries, now with the total of USD 104,200. This will make PT Indo Kaya Energi to be more considerate towards acquiring PT Brothers, since there will be a large amount of expenses that PT Indo Kaya Energi needs to cover up after acquiring them in order to run future projects. The worth of these assets will be discussed in the next table, and we will find out if repairing these units will be worth the price or not. From table 3, we got the major non-current assets worth of PT Brothers Indonesia in US dollars. It is estimated to be around USD$ 895,000. With the reparation cost of approximately ≈ USD$ 104,200, it is certainly that if PT Indo Kaya Energi were to merge with PT Brothers Indonesia, it is better to pay for the reparation, relocation, and recertification expenses rather than acquiring new assets that will cost them eight times the price of repairing them. Since the current ratio of PT Brothers Indonesia is more than 1:1, thus it has the capability to pay its short-term debts. Although this might sound good, but a current ratio number that is too high does not mean the company runs smoothly. The immoderate current ratio that PT Brothers Indonesia has, indicates that there are inefficient use of their current assets or short term financing. This also could be calculated by using working capital ratio with the same equation.

Dimas Akbar Rizkiyawan
The Impact of Financial Risk Management In Succeeding Mergers and Acquisition Final Projeci 2042 = This determine that It can mean that the business is letting idle cash flow accumulate rather than properly reinvesting it in business expansion. Most experts believe that a working capital ratio of 1.5 to 2 is desirable.

636,042,329
The income statement table above shows the statement of the year 2020, the year where PT Indo Kaya Energi considered to undergo an acquisition towards PT Brothers Indonesia. The Table 5 above shows that PT Brothers Indonesia do not gain any operating profit from their projects in the year 2020, with a total of Rp.636,042,329 (USD 44,805) in loss. This is caused by their inactivity for more than two years from the end of 2018 to early 2020 therefore lack of projects. Most of their equipment (Assets), shown on Table 2 reparation expenses, need respiration and recertification to make sure it operates accordingly and to gain assurance towards any project givers in the future.
With the negative operating profit, PT Indo Kaya Energi needed to be more cautious on acquiring PT Brother's Indonesia (Naiborhu, 2019). With the excessive working capital ratio discussed below table 4, a combination inefficiency of managing their assets and operating loss, this does not determine a good outcome for PT Indo Kaya Energi. PT Indo kaya Energi are required to redirect their resources in order to be more efficient, such as finding new projects that will utilize their funding and assets (Chan & Pribadi, 2022). easier to analyze the potential of running the project, to be specific, a total revenue of USD$.5,029,575 for three years along the road. This project could also be extended through contract for more than the initial three years if PT Brothers Indonesia perform well throughout the project duration, making it a long term project that could end up being a steady revenue stream for years to come. With Failure Mode and Effects Analysis, we could see potential causes for going through the merger and acquisition process. PT Indo Kaya Energi would have to see the risk of acquiring them, and what chances for them to undergo a smooth transition. In other words, based on Table 4-4, the problems that leads to other problems such as the negative operation expenses, the most possible risk that occurs are unprofitable projects caused by PT Brother's Liabilities. Thus, PT Indo Kaya Energi could invest in PT Brothers Indonesia by acquiring them and paying off their debt. In exchange for new possible markets, besides Pertamina geothermal project, equipped with experience and knowledge in the industry

CONCLUSION
The validity will be defined and supported in this chapter. The archival data collection was the primary study tool, which was reinforced by data gathered and given by the researcher by an Indonesian company (PT Indo kaya Energi and PT Brothers Indonesia). Due to the raw data given by the company and the data collected by the researcher.
By doing a project feasibility analysis and financial analysis, we are able to obtain information from the company's assets and liabilities to conclude whether or not the process of mergers and acquisitions is liable or not. Firstly, the market analysis showed that Indonesia is one of the largest producers in the world, proving that joining the geothermal industry is not as risky as pioneering other commodities that are uncertain and unpredictable. With the growing consumer demand of geothermal energy in Indonesia each year, PT Indo Kaya Energi should seize the opportunity in order to expand their business.
Secondly, the asset analysis showed that most of PT Brothers Indonesia assets are damaged, but repairable. The cost of repairing these assets is relatively cheap to their original price, which is USD $104,200 , instead of PT Indo Kaya Energi buying new core machineries which are eight times more expensive than its respiration costs, with the price of USD$ 895,000. The relocation cost is also considered affordable, since most of the expense will be coming from preparing the spare parts of equipment, repairing, and recertification. Therefore, repairing, recertification, and relocating should be far more feasible than buying new equipment for PT Indo Kaya Energi. PT Brothers Indonesia is also having financial difficulties from their absence of projects, but on the other hand PT Pertamina Geothermal Energi gave an offer to PT Indo Kaya Energi which they do not have the equipment nor experience to do the job. Therefore, PT Indo Kaya Energi should consider acquisitioning and repairing the assets as investment for the company in the future.
Lastly, with the project cash flow being shown, PT Indo Kaya Energi could determine one of the outcomes of the project if executed well throughout the period. This will help PT Indo Kaya Energi strengthen their decision towards the mergers and acquisitions process to whether or not to see the potential of acquiring PT Brothers Indonesia in the long run.