ACQUISITIONS & ORGANISATIONAL INTEGRATION

Acquisitions & Organisational Integration

Acquisitions & Organisational Integration

Introduction

An acquisition is the purchase of one company by another company. It can be a total takeover of one's operations or simply a short term strategic buying of shares. The term acquisition or takeover refers to a position in which one organisation takes majority control over the other. Entities have a tendency of growth and they achieve this by two particular ways. An organization either grows organically or through the process of acquisitions and mergers. Corporations across the world are frequently involved in activities of mergers and takeovers, either to strategically position itself in the market to create dominance and out flank its competition, or are forced into such actions due to financial difficulties.

Recent takeover of Lehman Brother's by Barclay's is a good example of acquisition based on financial crisis. Corporations usually tend to merge with other organisations to maintain their existence, if they are not able to continue on their own. (Eckbo, B, E. 2008),

Discussion

Forms of diversification

Whatever be the case, if Corporations choose to go for diversifications, it can elect from the following types:

Horizontal mergers or acquisitions involve the merging of two companies that produce similar products, for example Bp & Amoco merger. This technique is very helpful if corporations decide to expand their production capacity quickly to achieve economies of scale and become a market leader. The move to Horizontal integrate operations between similar organizations tend to create monopoly and is immensely effective in acting as a barrier to new entrants.

Vertical takeovers are the purchasing of operations of organizations part of the same value chain. These are further sub-divided into two forms. Backward integration is a form of vertical integration where the company moves back in its value chain and purchases its suppliers. Similarly forward integration occurs where a Company moves forward into its value chain and purchases its supplier. This causes the intermediaries to dissolve and hence improving cost and operational efficiency. One of the major advantages of such integrations surfaces in relation to cost curtailments hence improves profit percentages.

Conglomerate acquisitions involve one firm of totally different domain acquires the operations of a Company in another domain. This is one of the most risky diversification techniques and is subject to criticism from business analysts. The issues related to such acquisitions are quite obvious. It will become difficult for one corporation to survive in another's domain if it does not have an expert knowledge of that area. Similarly heavy costs are associated with redundancies and issues relating to operating losses. The question remains that why firms do such mergers. The possibility of capture of a lucratively profitable domain brings investment pouring inn. If there is a decline in one domain then there is a possibility that the group will survive through the profits plunged by the other company in the group. (Eckbo, B, E. 2008),

Factors to consider before acquisitions or mergers

As part of the due diligence exercise the acquiring business must appraise the following key ...