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Dimas Akbar Rizkiyawan. (2022). The Impact of Financial Risk

Management in Succeeding Mergers and Acquisition Final Project.

Journal of Eduvest. Vol 2(10): 2033-2047

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Eduvest – Journal of Universal Studies

Volume 2 Number 10, October, 2022

p- ISSN 2775-3735 - e-ISSN 2775-3727

THE IMPACT OF FINANCIAL RISK MANAGEMENT

IN SUCCEEDING MERGERS AND ACQUISITION

FINAL PROJECT

Dimas Akbar Rizkiyawan

School of Business and Management Institut Teknologi Bandung, Indonesia

Email: dimas_akbar@sbm-itb.ac.id

ABSTRACT

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”

KEYWORDS

Finance, Financial Risk, Risk Management, Mergers and

Acquisitions

This work is licensed under a Creative Commons

Attribution-ShareAlike 4.0 International

Dimas Akbar Rizkiyawan

The Impact of Financial Risk Management In Succeeding Mergers and

Acquisition Final Projeci

2034

INTRODUCTION

Global Merger and Acquisitions volumes surpassed $5 trillion for the first

time, easily surpassing the previous high of $4.55 trillion established in 2007,

according to Dealogic statistics (Abramov, Khromov, & Shadrin, 2012). According

to Refinitiv, the total value of mergers and acquisitions was $5.8 trillion in 2021,

up 64% over the previous year. Therefore, with M&A growing each year, we

decided to research on this topic

Financial aspects are one of the most important points to be reconsidered

during M&A (Galpin, 2014). The reason being, companies tend to have liabilities

and debt towards the bank and other loan lending companies (Didier, Huneeus,

Larrain, & Schmukler, 2021). The acquisitor should also analyze the assets and the

cost of acquiring them or moving them towards another storage compartment (Wei

& Clegg, 2020). In other cases, assets will not infrequently be damaged or need to

be repaired (Kosicki, Tomberg, & Bradley, 2018). With all of those in mind, the

acquirer will have to calculate its financial capability to undergo M&A and whether

they should take the opportunity or not (Colovic, Lamotte, & Yang, 2022).

PT brothers is a service company that has the proper tools to operate the

project for Pertamina Geothermal Energy (PGE). PT Brothers has been doing

projects related to the geothermal industry since 2012, and the last operation they

did is back in 2018 (Ridwan, Purwohedi, & Warokka, 2018). They did not continue

for future projects because of the financial condition they had in the past few years,

therefore they are looking for a partner that can help them go through this situation.

PT Indo Kaya is looking for a project that is related to geothermal, and with

the current condition PT Indo Kaya does not have the sufficient technology to

undertake this project (Adityatama, Umam, Purba, & Muhammad, 2019). PT Indo

Kaya is viewing PT Brothers’ experience and technological advantages as a

potential for future projects. For the short term, PT Indo Kaya is looking at the

benefits of partnering with PT Brothers by having a funding system to continue

doing projects and For the long term, PT Indo Kaya sees the possibility of

acquisitioning PT Brothers.

The goal of this paper will observe the condition of PT Brothers Indonesia’s

asset’s compatibility, risk to undergo the project, and project cash flow. Whether

PT Indo Kaya Energi will take this project or not is based on the analysis of the

whole project.

PT Indo Kaya Energi (IKE) was established in Indonesia in 2005 to provide

products and services to the Indonesia Energy Industry. IKE is a wholly owned

Indonesia company, focusing on providing first class offerings in a specialized

range of products and services. Their focus is on developing their Indonesia

business and assets through internal investment and technology partnerships with

renowned international companies. A prime example is our partnership with Oil

States Industries who have licensed IKE for the manufacture/sale of conductor and

premium connections since 2005. IKE has also invested in technology and our

personnel to have a specialized product line of Tubular Running Services, as well

as Conductor Hammering and Casing Running Equipment.

RESEARCH METHOD

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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.

Dimas Akbar Rizkiyawan

The Impact of Financial Risk Management In Succeeding Mergers and

Acquisition Final Projeci

2036

Figure 1

List of geothermal producers.

1. 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.

Table 1

Shown in this table are the list of PT Brothers Indonesia’s assets. (Bolded

Unit Names are the available assets in Cisauk warehouse)

Unit Name

Specifications

Quantity

Sullair Primary Air

Compressor, Driven

With Engine Caterpillar

C -16 ATAAC Fuel

Efficiency

Sullair 1350 HDL Two Stage Rotary Screw

Compressor,Skid Mounted Open Frame type

total Air Volume 1350 scfm at 350 psig.

Sullair Primary Air

Compressor, Driven

With Engine Caterpillar

C -16 ATAAC Fuel

Efficiency

Sullair 1350 HDL Two Stage Rotary Screw

Compressor,Skid Mounted Open Frame type

total Air Volume 1350 scfm at 350 psig.

Sullair Primary Air

Compressor, Driven

With Engine Caterpillar

C -16 ATAAC Fuel

Efficiency

Sullair 1350 HDL Two Stage Rotary Screw

Compressor,Skid Mounted Open Frame type

total Air Volume 1350 scfm at 350 psig.

Sullair Primary Air

Compressor, Driven

With Engine Caterpillar

C -16 ATAAC Fuel

Efficiency

Sullair 1350 HDL Two Stage Rotary Screw

Compressor,Skid Mounted Open Frame type

total Air Volume 1350 scfm at 350 psig.

Booster JOY WB 12

Gardner Denver Driven

With Engine Caterpillar

C -15 ATAAC Fuel

Efficiency

Two stage Booster Compressor Capacity 2700

scfm at 2500 psig Skid Mounted, open frame.

Booster Hurricane

Driven with Engine

Caterpillar C-18

ATAAC fuel Efficiency.

Three stage Booster Compressor Capacity 2000

scfm at 3500 psig Skid Mounted, open frame.

Office Container

20 feet Office Container C/W Maintenance

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Room

Rotating Control Head

WASHINGTON 1300 series 30"x20" Adaptor

Rotating Head C/W Bearing Assembly

Rotating Control Head

WASHINGTON 1300 series 21-1/4" x 2000 Psi

C/W 11"x 2000 Dynamic Pressure 350 Psi.Static

Pressure 600 psi,Maximum RPM 150 RTJS R71

C/W Bearing Assembly

Rotating Control Head

WASHINGTON 1300 series 13 - 5/8" x

3000/5000 Psi C/W 11"x 2000 Dynamic Pressure

350 Psi.Static Pressure 600 psi,Maximum RPM

150 RTJS RX 57/BX 160 C/W Bearing

Assembly

Rotating Control Head

Grant Rotating Head 7068 13 - 5/8" x 5000 Psi

C/W 7-1/16"x 2000 Falow Dynamic Pressure

350 Psi.Static Pressure 600 psi,Maximum RPM

150

RTJS BX 160 C/W Bearing Assembly

1 Each

Rotating Control Head

Gran Rotating Head 8068 21 - 1/4" x 2000 Psi

C/W 10 "x 2000 Flow Dynamic Pressure 350

Psi.Static Pressure 600 psi,Maximum RPM 150

RTJS BX 160 C/W Bearing Assembly

1 Each

Injection Line/Hard Line

2" Pipe sch 160 with long 10 feet,8 feet 6 feet,4

feet,plus TEE,Elbow C/W Union Hammer FIG

1502 C/W Certificate Hydro Test from Anson

2 Sets

Hammer Plug Valve

2" Hammer Plug Valve C/W Union Hammer FIG

1502 end Connection MAWP 10000 psi

8 Each

Check Valve

2"Check Valve C/W union Hammer FIG 1502

end Connection MAWP 10000 psi

6 Each

Adjustable Choke Valve

2" Adjustable Choke Valve C/W union Hammer

FIG 1502 End Connection

1 Each

Banjo Box

21-1/4"x 2000 psi Bottom and upper Flange

RTJS R73 C/W 10" x 900 Ansi (3000) psi Outlet

Flange

RTJS R 53 (Diverter Flow)

2 Units

Banjo Box

13-5/8"x 5000 psi Bottom and upper Flange 13-

5/8"x 5000 psi Bottom and upper Flange Outlet

Flange RTJS R 53 (Diverter Flow)

2 Units

Isolation Valve

10" x 900 ansi Flange RTJS R 53 Expanded

Wedge Gate Valve operate by Hydraulique

System

1 Each

Isolation Valve

12' x 900 Ansi Flange RTJS R53 Expanded

Wedge Gate Valve operate by Hydrolique

1 Each

Isolation Valve

10" x 900 ansi Flange RTJS R 53 Expanded

Wedge Gate Valve operate by Hand Whell

1 Each

Throttle Valve

10" x Ansi 600 Flange,Hand wheelsystem RTJS

R 53

2 Each

Gate Valve

10" x 150 Ansi Flange Hand Whell operated

system

3 Each

High Pressure Spool

10" x 600 Ansi Flange RTJS R 53 C/W 3 hole 1"

Theedolet

2 Each

Blooie Line

10" pipe Sch 40 x 6M Long C/W 10"x150 Ansi

Flange end Connection

2 Sets

Barton Recorder

ITT Barton MAWP 3000 psi 0-400 inch water

2 Each

Geothermal Separator

Adjustable Up and Down

Dimas Akbar Rizkiyawan

The Impact of Financial Risk Management In Succeeding Mergers and

Acquisition Final Projeci

2038

Chemical Injection Pump

Texsteam Pump series 5006 capacity 13 GL/H

with 1" piston MAWP 3000 psi

Down Hole Tool

6-5/8" OD Float and Locking sub C/W 4-1/2" IF

PIN x BOX end Connection

3 Each

Fuel Tank

Square Tank with Capacity 20000 Liters

1 Each

Pipe Basket

1 Each

Pipe Rack

1 Each

Chemical Container

20 feet office container

2 Each

Rigup Container

20 feet office container

2 Each

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.

Eduvest – Journal of Universal Studies

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Reparation Expenses

Table 2

Total reparation costs, preparation costs, salary, and rents for fixing

PT Brothers Indonesia’s assets. Total (in USD) ≈ 104,200

Job

Quantity

Unit

Budgetary

Total

Budgetary

Equipment Preparation (Reparation and Spare Parts)

Material & Parts Purchase

Set

IDR600,000,0

IDR600,000,00

Repairing /rebuilding parts

Set

IDR150,000,0

IDR150,000,00

Recertification

SKPP Compressors and Boosters

BRO #01

Set

IDR130,000,0

IDR130,000,00

Hardlines pipes

Set

IDR60,000,00

IDR60,000,000

Downhole Tools

Set

IDR5,000,000

Lifting Parts

Set

IDR500,000

IDR16,000,000

Gate Valves 10" ANSI 900

Unit

IDR10,000,00

IDR30,000,000

Gate Valve 10" ANSI 150

Unit

IDR10,000,00

IDR30,000,000

Plug Valve 2" FIG1502

Unit

IDR6,000,000

IDR48,000,000

Check Valve 2" FIG1502

Unit

IDR6,000,000

IDR36,000,000

Adjustable Choke Valve 2"

FIG1502

Unit

IDR6,000,000

Safety Relief Valve 1"

Unit

IDR2,000,000

IDR28,000,000

Barton Recorder

Set

IDR3,000,000

IDR6,000,000

Banjo Box

13-5/8" 5000x10"ANSi900

Unit

IDR5,000,000

IDR10,000,000

21-1/4" 2000x10" ANSI900

Unit

IDR5,000,000

IDR10,000,000

T High Pressure

Unit

IDR5,000,000

Adaptor Spool High Pressure

Unit

IDR5,000,000

IDR10,000,000

Painting

Set

IDR100,000,0

IDR100,000,00

Relocation Cost to Citeureup Warehouse

Crane Rental at Cisauk 45T

Unit

IDR12,000,00

IDR12,000,000

Forklift at Cisauk 4T

Unit

IDR3,000,000

Crane Rental at Cileungsi 25T

Unit

IDR10,000,00

IDR10,000,000

Crane rental at Citeureup 45T

Unit

IDR12,000,00

IDR12,000,000

Trailer Rental f/Ciasuk

Unit

IDR5,000,000

IDR40,000,000

Trailer Rental f/Cileungsi

Unit

IDR3,000,000

IDR9,000,000

Salary Employee

Set

IDR60,000,00

IDR60,000,000

Salary BOD

Perso

ex Yard rental fee

month

IDR10,000,00

IDR20,000,000

Office BSD rental fee

3,472,222

year

IDR75,000,00

IDR37,500,000

Office & Yard Supply

Month

IDR5,000,000

Dimas Akbar Rizkiyawan

The Impact of Financial Risk Management In Succeeding Mergers and

Acquisition Final Projeci

2040

Total

IDR1,488,500,

000

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.

Table 3

PT Brothers Indonesia assets’ worth

Unit Name

Quantity

Price

Sullair Compressor

USD$ 125,000

Sullair Compressor

USD$ 125,000

Sullair Compressor

USD$ 125,000

Sullair Compressor

USD$ 125,000

Two Stage Booster

USD$ 175,000

Hurricane Booster

USD$ 200,000

Rotating Head w/

Insert

USD$ 20,000

Total

USD$ 895,000

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.

Financial Analysis

a. Balance Sheet

Table 4

Balance Sheet of PT Brothers Indonesia

Amount in Indonesian Rupiah (Rp)

Assets

Current Assets

Cash

582,362,618

Accounts Receivable

Other Receivables

5,990,999,384

Down Payment

2,757,509,289

Prepaid Expenses

4,725,253,111

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Supplies

8,930,266,837

Total Current Assets

22,586,391,239

Non-Current Assets

Fixed Assets

36,033,014

Total Fixed Assets

36,033,014

Total Assets

22,622,424,253

Debt and Equity

Current Liabilities

Account Payable

4,336,911,348

Other Liabilities

346,214,126

Short-Term Liabilities

Payables

732,230,640

Total Current

Liabilities

3,258,466,582

Equity

Authorized Capital

20,000,000,000

Retained Earnings

Current Year Profit

636,042,329

Total Equity

19,363,957,671

Total Debt and Equity

22,622,424,253

From table 4 stating balance sheet of PT Brothers Indonesia, we can see

the total current liabilities of PT Brothers Indonesia is approximately

Rp.3,260,000,000. We will be calculating the current ratio for PT Brothers

Indonesia, in order to find out the ability of the company to pay short term

liabilities. Through current ratio, we can see if PT Brother Indonesia could

maximize its current assets on their balance sheet to fulfill its current debt and

other payables

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =

22,586,391,239

3,258,466,582

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 6.93

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

𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

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.

2. Income Statement

Table 5

Income Statement and Operating Expense (2020) of PT Brothers Indonesia

Income Statement (in IDR)

Operating Revenue

18,000,000

Operating Expense

Depreciation Expense

Gross Profit

18,000,000

Operating Expense

Salary

385,116,388

Transportation

8,924,500

Office

176,624,747

Depreciation and

Amortization

Documentation and

Delivery

1,000,000

Repair and Maintenance

45,380,100

Meetings

Advertising and Marketing

General and

Administrative Expense

36,996,594

Total Operating Expense

654,042,329

Operating Profit (Loss)

636,042,329

Operating Profit After

Tax (Loss)

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.

Eduvest – Journal of Universal Studies

Volume 2, Number 10 , October, 2022

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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).

3. Project Forecast

Table 6

Project forecast given from PT Pertamina Geothermal Energy

PERTAMINA GEOTHERMAL PROJECT FORECAST

Operational

2021

2022

2023

Total

Cash in

A. ADDITIONAL FUNDS

In USD

B. REVENUE FROM RENTAL

EQUIP

Mobilisation et Demobilisation

50,000

114,125

214,125

Daily Operation Fee (THO) -

Equipment

292,125

228,000

812,250

Daily Standby Fee (THS)

424,000

1,272,000

Transport Fee

36,000

108,000

Demobilization

50,000

150,000

C. REVENUE - MANPOWER

Supervisor Fee

360,000

1,080,000

Operator Fee

312,000

936,000

Supervisor Transport (Return)

4,800

14,400

Operator Transport (Return)

4,800

14,400

D. REVENUE - MATERIAL

Stripper Rubber

26,400

28,800

84,000

Foaming & Agent (Drum, 200 Liter)

51,200

153,600

Corrosion Inhibitor (Drum, 200 Liter)

25,600

76,800

E. REVENUE - OPERATIONAL

30" Rotating Head

6,000

18,000

21 - 1/4' Rotating Head

20,000

60,000

21 - 1/4" Banjo Box

12,000

36,000

Data Acquisition System

TOTAL CASH IN

1,674,925

1,677,325

5,029,575

TOTAL REVENUE UNIT PER 3 YEARS (in USD)

5,029,575

Although PT Brothers Indonesia might have some problem related to

efficiency, based on table 6 PT Brothers Indonesia is able to create a forecast of

project cash flow for the geothermal project offered by PT Pertamina

Geothermal Energi (PGE) to PT Indo Kaya Energi. This forecast will make it

Dimas Akbar Rizkiyawan

The Impact of Financial Risk Management In Succeeding Mergers and

Acquisition Final Projeci

2044

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.

4. Failure Mode and Effects Analysis

Table 7

Failure Mode and Effects Analysis table

Functi

Failure

Modes

Failure

Effects

Sever

ity

(1-10)

Potential

Causes

Occurre

nce

Present Controls

Detectio

n (1-10)

Merger

and

acquisi

tion

Proces

Unusabl

Assets/

Tools

Unable

Execute

Forward

Projects

Availabl

e Spare

Parts

Spare Parts Are

Available From

Manufacturers

Expensiv

Reparati

on Costs

All the Reparation

Costs Details are

Available, So it Can

Easily be Managed

Not

Enough

Space in

Warehou

Assets Mapping has

been Given from PT

Brothers, and also

Having Blueprints

for PT Indo Kaya

Energi's Warehouse

Project

Cash

Loss

Unprofit

able

Projects

No Clear

Cash

Flows for

Future

Projects

PT Brothers

Indonesia has

Created a Future

Project Cash Flow,

in Order to

Calculate Future

Revenue and Profits

if Somehow PT Indo

Kaya Energi

Decided to Merge

with them

Inefficie

ncy

PT Indo Kaya

Energi has detected

PT Brothers

inefficiency inside

their company, their

balance sheet report

shows them that if

they were to merge,

they will have to

reorganize its

funding and assets

usage

Market

Unavail

ability

Availabl

e Buyers

for

Breakthr

ough

Commod

ity

They have

Researched that

Indonesia Has

Capable Markets

Eduvest – Journal of Universal Studies

Volume 2, Number 10 , October, 2022

2045

http://eduvest.greenvest.co.id

Products

For Geothermal

Produce

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.

Dimas Akbar Rizkiyawan

The Impact of Financial Risk Management In Succeeding Mergers and

Acquisition Final Projeci

2046

In conclusion, the impact of financial risk management is by providing

assistance towards PT Indo Kaya Energi to determine whether merger and

acquisition of PT Brothers Indonesia is feasible or not. By knowing the state of PT

Brothers Indonesia, PT Indo Kaya Energi could evaluate their decision making

process by observing the market risks and financial risk shown by their reports and

cash flows in order to make their final decision. Therefore, according to our analysis

of PT Brothers Indonesia, PT Indo Kaya Energi should take the opportunity to

acquire PT Brothers Indonesia.

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