Advantages And Disadvantages Of M & An Operations

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The objective of this part is to analyze the reasons that can lead a firm to M&A operations. Neoclassical economists and strategy experts argue that it improves the competitive position of the firm by exploring the characteristics of the acquired business and its added value, while others are in favor of behavioral theories such as agency theories, hubris, and misvaluation. This part therefore presents the main motivations for merger transactions as well as the improvements that an M&A transaction provide. It is helpful to know why the other side (the seller) is planning to sell his business in a transaction. This knowledge should facilitate for both parties to impose it bargaining power and the structuring of proposals to meet financial, strategic, and personal objectives of the other part. The main common reasons may include: Common reasons of the seller Common reasons of the buyer · Need for additional capital to finance growth. · Low or declining growth or rising financial difficulties. · Presence of strategic disadvantages that cannot be overcome as standalone business. · Market or industry conditions that create…show more content…
Volume-effect-cost synergies are the reason most often cited in a business combination. They correspond to a decrease in the average unit cost of production associated with the quantity of products manufactured. Fusion thus appears to be an effective means to achieve this objective and to distribute fixed costs over a larger number of manufactured units. The size of the merged companies also makes it possible to meet efficiency criteria, by giving the purchaser the opportunity to reach a critical mass essential to his development. Indeed, economies of size are not just efficiency requirements, they can also contribute to business growth and
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