MERGERS AND ACQUISITIONS

Mergers and Acquisitions

Abstract

With the ever-changing global business environment, many businesses have considered it a safer option to enter new markets by striking mergers and acquisitions deals with companies that have a fair deal of knowledge of that market. It is argued that mergers and acquisitions help to minimize the inherent risks that businesses would be confronted with in a market if they ventured otherwise. This paper analyzes the range of factors that affect the decision of a business to strike a merger or acquisition deal with another business. It also determines whether these deals provide businesses with the benefits that they forecast when they enter into a targe t market.

Introduction

In recent decades, the competitive environment has led companies to make a lot of changes. Various strategies have been employed to achieve permanence and even stronger growth to the pressures of globalization. Agreements and alliances are today, seeking common stock plus the strength, greater participation and entry into new markets, access to technology, etc. These agreements are between companies in different regions and countries. In the current economic conditions some partnerships end in acquisitions of businesses stronger. Mergers, understood as the union of two or more companies to form a new organization to achieve different purposes, are another phenomenon with high presence. In some other cases companies merge in agreement and others are a result of hostile takeovers from companies who see opportunities to expand such purchases or enter other markets. The merger involves the reorganization of productive activities, distribution, marketing, etc. The expected result is a more efficient, with greater potential for innovation, with a better market position.

Background of the Study

In the past, there have been several researches on the effect of mergers and acquisitions on businesses. Past studies suggest a wide range of factors that encourage businesses to strike mergers and acquisitions. Although these factors vary from one market to another, there is a striking similarity in the long-term objectives that businesses identify when they take such a critical decision. This paper analyzes the effect of mergers and acquisitions on businesses operating in diverse markets and explains how they benefit by making such decisions, particularly when entering a target market.

Literature Review

The theory of mergers and acquisitions still needs further understanding and systematization to result in a general theory, with support and contextualization among other theories. In this context, Straub (2007) provides a better understanding of the topic and the way that can be addressed empirically. He does this mainly by describing some theoretical aspects intrinsic to the activity of mergers and acquisitions, its fundamentals and underlying motives. On the other hand, Coyle (2000) also makes significant contributions in the field as he researches relevant literature in economics and finance in order to set empirically testable hypotheses before analyzing its results. The evidence gathered from his work suggests that mergers and acquisitions take place for the purpose of maximization of the wealth of shareholders regarding the managerial utility. Moreover, his work also highlights how synergism exists or not within ...