Mergers and Acquisitions

Mergers and acquisitions

Mergers and acquisitions

Introduction

Mergers and acquisitions or takeovers and corporate structuring are a part of business corporate strategy. Mergers and acquisitions are aimed at combining two companies to form larger ones. A merger is distinguished from an acquisition by the fact that a merger means combination of two entities in a way that a new resultant entity is formed while in an acquisition one entity acquires the other, the acquired entity no longer remains operative, the acquirer company swallows the business, and the buyer shares continue to be traded (Arnold, 2008).

The beginning part of this paper examines that all the takeovers and mergers are not always successful and does not fulfill the original purpose of the combination. It discusses the benefits of mergers and how mergers actually help in creating value for the firms, motives behind the mergers and acquisitions and the implications associated with the process. We will then explore the examples of companies, which have done wonders after merger and at the same time identify the companies that have lost value because of bad decisions.

Discussion

A merger or an acquisition may have many motives behind it. Some of many motives behind the merger and acquisitions are listed below

Synergy

The magic force working behind the mergers and acquisitions is synergy that allows the companies to achieve enhanced cost efficiencies of the resulting business. Synergy is accomplished by either revenue enhancement or cost reductions. Operations are combined by firms through mergers for the purpose of reducing costs, increase product quality, increase output and gain access to new technologies.

The efficiencies achieved from mergers include both operational and managerial efficiencies. Efficiencies in management stem from economies of scope, enhanced allocation of resources, enhanced informational use, improved asset and finance mix etc. these benefits may be quickly and very cheaply achieved with mergers or acquisitions.

Improved market reach

Companies acquire other companies to widen their market and increase revenue and growth. A merge can allow for a much effective distribution and marketing channels that can help companies to increase sales opportunities. A merger can also improve a firm's position in the eyes of the sell side investment group as larger units are more likely to get easier access to capital than smaller ones (Arnold, 2008).

Taxation

Mergers and acquisitions not only results in operational improvements but at the same time may result in financial efficiencies as well. Acquisitions of firms or their assets with different earnings stream results in earning diversification of the acquirer firms. For instance, a profitable company can purchase a loss company to make use of the acquired company's loss to reduce their tax liability. However, in many countries certain restrictions limit the tax motives of the merger.

Hiring

As an alternate to the normal hiring process, some companies use acquisitions to hire their staff. This is mostly done when the target company is a small private company and its staff is the most appealing resource. The target company ceases to exist and the acquiring company hires its ...