Motives behind mergers and acquisitions. Merger and Acquisition Motives, Types and Strategies 2022-10-07
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Mergers and acquisitions (M&A) refer to the consolidation of companies or assets through various forms of business combinations. These transactions can involve the merger of two companies to form a new entity, the acquisition of one company by another, or the acquisition of assets from a company.
There are several motives behind M&A activity, and these can vary depending on the specific circumstances of each transaction. Some common motives include:
Growth and expansion: M&A can be a way for companies to quickly expand their operations and enter new markets. For example, a company may acquire a competitor in order to gain access to their customer base, technology, or other assets.
Cost savings: M&A can also be used as a way to cut costs by eliminating duplication of efforts, streamlining operations, and achieving economies of scale. For example, two companies may merge in order to combine their purchasing power, which can lead to cost savings through bulk discounts.
Diversification: M&A can also be used as a way to diversify a company's operations and reduce risk. For example, a company may acquire a business in a different industry in order to hedge against economic downturns or market fluctuations in its primary industry.
Synergy: M&A can also be motivated by the belief that the combined company will be more valuable than the sum of its parts. This can be due to synergy, or the idea that the combined company will be able to achieve greater efficiencies and cost savings than either company could individually.
Defense: In some cases, M&A can be motivated by a desire to defend against a potential acquisition by another company. For example, a company may acquire a potential competitor in order to prevent them from being acquired by a larger rival.
Overall, the motives behind M&A activity can be complex and varied, and may involve a combination of the factors listed above. M&A can be a powerful tool for companies to achieve growth, cost savings, diversification, synergy, and defense, but it is important for companies to carefully consider the potential risks and benefits of these transactions.
Motivations for Mergers and Acquisitions
The acquiring company may believe that making some improvements in management and organizational structure and adding more resources, it can make the company perform better. A merger of two or more companies in the same supply chain. Market power means undue concentration which could limit the choice of buyers as well as exploit suppliers and labour. SEBI Guidelines on Nov. The purchase is made with cash or through the issue of some kind of debt instrument. Securities and Exchange Commission.
Increase in financial capacity Every company faces a maximum financial capacity to finance its operations through either debt or equity markets. In some cases, the acquiring firm may be able to recover all or part of the cost of acquiring the cash-rich firm when the merger is consummated and the cash then belongs to it. Purchase Mergers As the name suggests, this kind of merger occurs when one company purchases another company. For example, RPG Group had a turnover of only Rs. With increased financial ability it makes it ease production, gain access to loans from banks, and acquire more assets. This led to an increase in profits and service delivery efficiency due to economies of scale.
Motives Behind Mergers & Acquisitions: Theory & Critical Review of Literature by Neha Rohra, Kanika Chawla :: SSRN
This can easily be done through mergers and acquisitions in a very cost-effective way as compared to developing the capabilities internally. Often it has found that the desired asset could be obtained cheaper by acquiring a firm that already owned and operated the asset. External factors such as Inflation, economic downfall, or natural calamities may affect the final performance of the merger. They may involve a single product with multiple technologies. External growth could be expensive if the company pays an excessive price for merger. Some of the positives include- the prospective to add value to a organization's main point here, the prospective to increase a company, and the prospective to add resources to a organization's holdings. Generally, the consolidation of two businesses results in synergies that increase the value of a newly created business entity.
Mergers and Acquisitions: Types, Motives and Legal Procedures
To acquire more assets a merger and acquisition is a may be inspired by a desire to gain access to assets that are unique or assets that may take a long time to develop internally by a firm. The acquisition of the Android mobile operating system in 2005 by Google stemmed from the need to build a mobile presence and embrace the emerging trend in mobile computing. Diversification A commonly stated motive for mergers and acquisitions is to achieve risk reduction through diversification. Individually these firms could serve only a limited area. In addition to this the raiders should reveal their intentions and avoid clandestine or secrete deals.
Merger and Acquisition Motives, Types and Strategies
The company can acquire production facilities as well as other resources from outside through mergers and acquisitions. Companies may also look for synergies. Why and which source of finance is better to reduce cost of acquisition: Mostly we acquire a business by cash, issue of shares or by debt instruments. Updated December 1, 2022 What are the Different Motives for Mergers? For example, a company may use a merger to diversify its business operations by entering into new markets or offering new products or services. What are the motives behind merger and acquisition? But its management may recognize that continued growth to capitalize on its markets will require financing beyond its means. After the merger, the assets fail to generate revenue. In fact, the dawn of the new millennium saw a series of mergers and acquisitions that in turn, has now dominated the contemporary global business scene.
If investors can diversify on their own by buying stocks of companies which propose to merge, they do not derive any benefits from the proposed merger. As a result of the merger, Blow Plast has obtained a strong hold on the market and now operates under near monopoly situation. . Hostile acquisitions don't have the same agreement from the target firm, and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest, which forces the acquisition. The number, assets, human resources may look good on paper and fail to execute on the ground. Mergers are categorized into five main categories.
Internationalization: Internationalization of business operation through mergers and acquisitions There is an ongoing trend of global expansionism undertaken through cross-border mergers and acquisitions. Accordingly, for the past years, research and development have become costly while sales and customer demands have dwindled. A firm operating in North India, if merges with another firm operating primarily in South India, can definitely cover broader economic areas. There will come a time when the company wants to acquire the competencies and resources that it lacks. A firm can increase its market share through internal growth or ventures or strategic alliances. I think sources of funds from the share holder and bank loans are best suitable to raise funds and I suggest that cash flow analysis is the best way to calculate cost of acquisition because this analysis helps us to find the net present values for investments and also internal rate of return on investment.
What are the motives behind mergers and acquisition?
A merger of two companies that deals with production of similar goods and services but operating in different markets and locations. Acquired assets can be written up to the actual purchase price, and the difference between the and the purchase price of the assets can How Acquisitions Are Financed A company can buy another company with cash, stock, assumption of debt, or a combination of some or all of the three. Generally, the consolidation of two businesses results in synergies that increase the value of a newly created business entity. It shows the present value of all future cash flows discounted at the cost of capital on present investment. Narayanan 1993 suggested three major motives for mergers and acquisitions: synergy, agency and hubris. For example, a company may use a merger to diversify its business operations by entering into new markets or offering new products or services.
ADVERTISEMENTS: 3 Conglomerate In conglomerate merger the merging companies are in totally unrelated lines of business. All these guidelines are issued to make takeovers as transparent as possible in order to protect target companies and individual shareholders. Sources of finance for business acquisition: When a company purchases other company the financial sources of current company may falls inadequate. Both mergers are very common and are done for consolidating businesses. Note that the type of merger selected by a company primarily depends on the motives and objectives of the companies participating in a deal. They bring different small size companies together to form a larger company. In merger, same size of companies merges together and establishes new company.
Motives behind mergers and childhealthpolicy.vumc.org
This helps to raise funds for acquisition. Goodwill appears in the financial statements on assets side. This is a merger of two firms who are direct competitors operating in the same jurisdiction, with similar goods and services. A merger increases market share, control, and power for the merged firm. Utilization of tax shields ADVERTISEMENTS: ii.