Mergers And Acquisitions
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Introduction
Mergers and acquisitions (M&A) happen because companies realize that they can do better by expanding their operations and increasing overall production. Merging means that two companies agree to join together as one entity. “Acquisition always involves the purchase of one company by another” (Investopedia, 2006). The idea of merging or acquiring another company is to bring more efficiency into the company. This typically means cutting costs, eliminating duplicate operations and providing lower prices to consumers. There are many reasons for merging businesses or acquiring them and many long term consequences are going to be impacted; therefore, it is necessary to do much research so that a solid decision is made.
Impact of Mergers or Acquisitions
When analyzing whether or not a merger or acquisition should take place, it is important to analyze the longer term consequences in how mergers and acquisitions impact business on several different levels including economic, political, culture, exchange rate of monies, trust in company controlling, structure, and stability. Merging with foreign countries can have many barriers, such as legal barriers and on-going costs. Legal barriers may include any legality necessary from cross-border mergers or internationally.
Reasons for Mergers or Acquisitions
Corporate assets are becoming intangible, which means they are composed of ideas and knowledge which cannot be codified. Acquiring these know-how assets is a motive for mergers and acquisitions. Companies want to grow in many different directions. There are pressures for financial innovation, economic growth, diversity and expansion, technological advances, and to take advantage of work forces with particular skills. Other reasons for merging with or acquiring a company may be just to broaden the range of related products and the market.
Benefits and Costs of Mergers and Acquisitions
The primary benefit to mergers and acquisitions is the efficiency that can result in lower costs to consumers. Other benefits include the reduction of costs for duplicate operations by companies and the technological advances that can be combined by both companys working together.
Acquiring companies always pay a high premium on the business which they are purchasing. This result is due to the requirements by shareholders to receive higher returns. “A merger benefits shareholders when a companys post-merger share price increases by the value of potential synergy” (Investopedia, 2006).
Merging or acquiring organizations in another country
Research conducted on mergers and acquisitions for foreign takeover generally suggests that:
“Corporations that have been taken over by foreign interests increase their capital investment and their R&D spending.
High levels of R&D