Acquisition Is A Useful Tool For Business Growth By The Means Of The Acquisition Of Another Firm

3684 Words Sep 7th, 2014 15 Pages
“Firms achieve growth by the means of the acquisition of another firm”. Discuss.
There is an on-going debate regarding the issue of acquisition with regard to the advantages and disadvantages of acquisition. There are some claims that acquisition producing positive outcomes and drives companies toward success. However, the acquisition is mainly considered to produce more negative outcomes and drive companies toward failure. Company acquisition is better to be described from a point of considering as expansion processes where a company is purchasing another company for the purpose of maximizing profit. Even though there are some disadvantages of acquisition, but acquisition is a useful tool for business growth, such as management buyouts.

Introduction 3
1) Advantages of acquisition 4
1.1) Expand market share 4
1.2) Tax benefit from acquisition 5
1.2.1) Share holder taxation 5
1.2.2) Corporation taxes 5
1.3) Reduce competition 6
1.4) Economy of scale 7
2) Disadvantages of acquisition 7
2.1) Undervalue assets 8
2.2) Cultural conflict 9
2.3) Manager seeks for self-interest (agency theory) 10
2.4) Overconfident manager 10
2.5) Huge capital 11
2.6) Employee retention 12
3) Management buyouts 12
3.1) History of MBOs 13
3.2) Employee stock ownership plans (ESOP) 13
3.3) Management prospective towards MBOs 14
4) Benefits of Management buyouts 14
4.1) Interests relaxation and depreciation deductions 15
4.2) Efficiency gains 15
4.3) Effects of risk 16
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