Advantages And Disadvantages Of Mergers And Acquisitions Pdf
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This provides a means of expansion or it can remove an obstacle to even greater financial success. Before you make that decision, however, you need to understand the pros and cons of acquiring another company that sells similar products or services that you do. First, an acquisition is the act of buying another business, whereas a merger is a process by which two companies become one company, though the ownership interests may differ. In contrast, mergers often involve a chain of command that gives the leadership of the other company some form of authority or control over how decisions are made. One main advantage of buying another business that sells similar product or services is that you can create economies of scale , which refers to the process of increasing production by lowering production costs.
Mergers and acquisitions
Merging two companies can provide the firms with synergies and economies of scale that can lead to greater efficiency and profitability, but it is important to note that mergers can have a downside too.
It may be harder for the combined organization to cooperate and communicate, and there's a risk that companies with a too-large market share will eliminate the competition and raise prices for consumers. When two firms merge, it is more than a coming together of two names or brands — it is a real merger of people who bring along a specific corporate culture.
If two firms have very different corporate cultures, conflicts can arise. For example, if an innovative, entrepreneurial company with a flat hierarchy were to merge with a highly hierarchical, conservative and traditional organization, the employees in the new organization would be likely to have difficulties working together.
When businesses merge, it is often to achieve economies of scale. Larger organizations are typically able to produce goods and services more efficiently and at a lower per-unit cost than smaller businesses because fixed costs are spread out over a larger number of units. This is not always the case, however. Sometimes when two firms merge, being larger will actually create dis-economies of scale, where per unit production costs increase because of increased coordination costs.
When two companies merge, they need to consider how consumers view the two firms and whether or not they view them in a compatible way. For example, if an environmentally friendly soap company were to merge with an industrial detergent manufacturer with a poor environmental track record, it may alienate the customers of the environmentally friendly soap company who don't want to support a company that is not environmentally responsible.
Merging two businesses is often a good method for reducing the labor force of the two organizations. For instance, a company may combine its two offices into one and reduce the number of staff performing the same duties. While this can provide cost savings for the company, it can also have a negative effect on employees. Employees may become fearful of losing their job and may lose their trust in the organization.
This can decrease employee motivation and reduce productivity. Price competition reflects competition in most cases. Monopolies are one big potential issue with company mergers. Even without monopoly creation within an industry, less competition often leads to increased pricing to consumers.
While some increases reflect the increased costs involved in dis-economies, the ultimate result yields dissatisfaction to the buyers of goods and services. Business mergers often have to balance increased pricing with potential layoffs to prevent high consumer costs. Wendel Clark began writing in , with work published in academic journals such as "Babel" and "The Podium.
Benefits of a Merger or Acquisition
Starting a business has become rather easy, however, growing it is usually harder once a company has reached a certain point. One of the best ways of growing an existing company is through mergers and acquisitions. It is also worth noting that mergers and acquisitions are regulated in countries all over the globe and they come with many advantages. Many governments offer tax cuts or reductions when a merger or acquisition is completed. Among these, Singapore is one of the best Asian countries where a merger or acquisition could take place in. Opening a business in Singapore by merging or acquiring a smaller existing company can attract substantial tax advantages in this country.
There are many good reasons for growing your business through an acquisition or merger. These include:. Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business. Accessing funds or valuable assets for new development.
A merger is different from an acquisition. Mergers happen when two or more companies combine to form a new entity, whereas an acquisition is the takeover of.
The Disadvantages of Merging Companies
Merging two companies can provide the firms with synergies and economies of scale that can lead to greater efficiency and profitability, but it is important to note that mergers can have a downside too. It may be harder for the combined organization to cooperate and communicate, and there's a risk that companies with a too-large market share will eliminate the competition and raise prices for consumers. When two firms merge, it is more than a coming together of two names or brands — it is a real merger of people who bring along a specific corporate culture. If two firms have very different corporate cultures, conflicts can arise.
So what is the impact of all these mergers? A financial merger or acquisition is pursued, as the name implies, for financial reasons—often to pick up some quick cash or as an investment. Strategic mergers and acquisitions offer a solution to a different business problem. Perhaps the acquirer is looking to grab a new product line, add some additional facilities, enter a new market, or gain expertise and intellectual property.
This is a type of business alliance are used by companies either to diversify or to grow their businesses. Mergers and acquisitions are generally used synonymously; however, as defined above the two combinations are different in subtle ways. In a merger transaction, a new company is formed by two companies.