Merger And Acquisitions From A Strategic Financial Perspective

This paper is about two companies that went through same type of change (merger and acquisition) with different outcomes. Merger is combination of two or more companies in which the assets and liabilities of the selling firms are absorbed by the buying firm. Although the buying firm may be a considerably different organization after the merger, it retains its original identity while Acquisition is the purchase of an asset or an entire company (Sherman, A. J., & Hart, M. A. (2005). Chapter 1: The Basics of Mergers and Acquisitions. In, Mergers & Acquisitions from A to Z. American Management Association International.).

Mergers and takeovers are forms of external growth within a business. External growth occurs when one firm decides to expand by joining together with another. A takeover specifically refers to the gaining control of a firm by acquiring a controlling interest in its shares (51%). Merger, on the other hand, means the joining with another firm to form a new combined enterprise, shares in each firm are exchanged for shares in the other.

In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of the consolidation process. Then we present the acquisition method of accounting for business combinations followed by limited coverage of the purchase method and pooling of interests provided in a separate sections.

(a) In a merger agreement, the assets and liabilities of the firm which is being acquired end up being absorbed by the buyers firm. A merger could be the most effective and efficient way to enter a new market without the need of creating

Mergers and acquisitions have become a growing trend for companies to inorganically grow a business within its particular industry. There are many goals that companies may be looking to achieve by doing this, but the main reason is to guarantee long-term and profitable growth for their business. Companies have to keep up with a rapidly increasing global market and increased competition. With the struggle for competitive advantage becoming stronger and stronger, it is almost essential to achieve these mergers. Through research I will attempt to dissect the best practices for achieving merger success.

Haspeslagh and Jemison (1987), argue that what determines the success of a acquisition is not the actual purchase itself, but the development of the acquisition strategy the supports. Unfortunately, many executives face the acquisitions as an end, not a means to achieve that end. According to this author, the acquisition is only one strategy business growth. There are others as internal growth, joint venture, partnership, franchise and strategic alliance. All should be evaluated by the company before implementing a business development strategy. A proper analysis of the acquisition goes beyond the study's own candidate company. It must include a contribution from the analysis of potential acquisition for the strategic development, as well as

Sky began in 1989 when they launched a satellite television service with four channels which where free of charge. This included Sky News which was as the time Europe’s first 24 hour news channel and in 1991 Sky Sports was invented which would go on to become one of the biggest channels in history. By 2006 sky had become one of the major market players within home phone, broadband and television. In 2014 Sky acquired its sister companies in Austria Germany and Italy. (Sky Timeline 2015) Sky now has over 20 million customers gained through operating in five different countries; The United Kingdom, Ireland, Austria, Germany and Italy. Sky is now Europe’s largest entertainment provider with £11 billion of revenues and employs 31,000 employees at 30 main sites

 First mover advantage might give us an upper hand in acquiring market share which

The inherent business practice of acquiring other , usually competitive, companies is part of a risky but potentially big payout for the risk taker. To understand the true and relative impacts of mergers and acquisitions, it is necessary to examine organizations that both avoid and undertake these types of financial deals. The purpose of this essay is to examine two distinct companies and their business strategies in order to understand the practicality and feasibility of corporate mergers.

One of the theories used to explain why firms engage in M&A is the synergy theory. Synergy theory or hypothesis asserts that the sum value of both individual firms before an M&A is lower than that of the combined firm (Seth, 1990). This increase in value is due to the effect of the synergy potentials which could only be realized by combining operational and financial resources of both firms. These synergies present the extra value created by merger. Thus, creating value for shareholders that at least equates or exceeds the cost of the acquisition should be the primary objective of any M&A. Essentially, synergies should be the sole principle in justifying companies to engage in M&A. In theory, financial synergy of a merger is realized when

There are a number of competing theories of mergers and acquisitions (M&As) based on the purpose for which such M&As are undertaken. Among these theories are empire building (Baumol, 1967, & Mueller, 1969), establishment of monopolies (Roll, 1986, & Mueller, 1993), management entrenchment (Shleifer & Vishny, 1989), and the attainment of greater efficiencies (Mead, 1968, & Jensen, 1988). These theories are built on the motivations that prompt compa-nies to enter into M&A transactions (Motis, 2007:2). There are instances, however, when target companies do not voluntary agree to a takeover but are compelled by aggressive manoeuvres of the acquiring company. In such

The completions and interests in Mergers and Acquisitions (M&A) is growing largely day by day (Michael A. Hitt, Jeffrey S. Harrison, R. Duane Ireland, 2001) During the recent recessions companies are looking into different ways to stay afloat, to grow and even continue to exist, and one of the best ways of doing this, is to merge or acquire another company (Dash, A, 2010) Lynch (cited in David Faulkner, Satu Teerikangas, Richard J. Joseph, 2012) also believes in some instances growth can take place within sector integrations which includes horizontal or vertical or even by going into a new sector by acquiring a new business, which is called diversification. A Merger or Acquisition takes place when two or more companies join

a) b) c) d) e) Definition of mergers & acquisitions.............................................................................................3 Classification of mergers & acquisitions......................................................................................5 The merger & acquisition process ................................................................................................6 Why do firms engage in merger & acquisition transactions? ...................................................8 The development of mergers & acquisitions.............................................................................10

M&A are often conducted for the strategic advantages that it entails such as improvements in efficiency, performance as well as synergistic gains (Junior et al, 2013). The potential source of synergies motivates firms to engage in M&A where they believe the value generated from this strategic combination exceeds the respective individual firm value if they were to operate independently (Duksaite and Tamosiuniene, 2009).

Literature on theories of M&A shows that the motives of companies incorporates M&A ,are gaining operating and financial synergy, diversification gaining economic of scale, increasing the market power and the increase of shareholders values.