Companies Achieve Growth By The Means Of Acquisition Of Another Firm

1781 Words8 Pages
1. Introduction There has been much discussion on the issue of whether can firms achieve growth by the means of acquisition of another firm. Acquisition can be generally defined as “taking possession of an asset by purchase.” (Business Dictionary, 2014) Although some researchers have argued that acquisition can contribute to firm growth, others take a different view that, to some extent, most of the acquisitions fail resulting in over confidence of CEO and the fraud by acquired firm. For instance, Sudarsanam (2003) suggested that successful acquisitions constitute less than 50% of all acquisition. This essay will aim to demonstrate that firms in their majority cannot always achieve growth by the means of acquisition of another firm.…show more content…
(http://www.investopedia.com/slide-show/biggest-acquisition-failures/?article=1,no date). It is state that there are four common reasons of unsuccessful acquisition. It is state that there are four common reasons of unsuccessful acquisition. It is over expected of synergy, different company culture, lose regular clients and politics. 2.1 High Expectations of Synergy When considering the commonest reasons for loss of profit, shrinking of companies and failed acquisitions, one of the reasons that cannot be ignored is the over expectations the acquiring firm was of synergy. Synergy can be defined as the “extra energy or effective that people or businesses create when they combine their efforts.” (Macmillan Dictionary, 2009). Chatterjee (2006) suggested that there are three types about synergy: financial synergy, operational synergy and collusive synergy. All of these three types of synergy could show in acquisition. It has been argued that, the over expect of synergy usually caused by the over confident of the manager and the incorrect analysis of the market. Due to the over expect, the parent company could acquired another firm with a high price, the price could more than actual value of the acquired firm. Moreover, after the acquisition, the money spent on the acquisition cannot be gained back through the acquired firm, it could become a new pressure to parent firm and also influence the
Open Document