Essay Mergers and Acquisitions

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Nowadays mergers and acquisitions are regarded as a key strategic option for the organisations all over the world. According to Huang and Kleiner (2004) mergers and acquisitions have become the principal means by which companies have the opportunity to grow revenues due to factors such as gloabalisation, rapid technological changes, a long-term bull market and strategic barriers to growth. Porter and Singh (2010) admit that mergers and acquisitions play an important role in reallocation of resources in an economy. Despite the huge increase of corporate mergers and acquisitions during the last decades many surveys show that the majority of them fail (Nguyen and Kleiner 2003).The purpose of this essay is to give a brief overview of mergers…show more content…
Roll (1986) states that the hubris model indicates that over confident managers make wrong estimations about the value of the potential targets and as a consequence they decrease the value of their shareholders’ wealth when the acquisition is completed. The main objective of mergers and acquisitions is to increase market share and shareholder value by decreasing costs and implementing improved services (Nguyen and Kleiner 2003). Each organisation in this process targets the strengths and the capabilities of the other in order to improve its position in the market. Stallworthy and Kharbanda (1988) argue that one of the main objectives of mergers and acquisitions is the acquirer’s diversification with minimum cost in order to be protected and be restructured in a possible crisis. Keenan and White (1982) mention that firms seek for synergies in order to diversify and reduce the possibility of bankruptcy, achieve a better fit between the talents of corporate managers and the resources at their disposals and simultaneously acquire a bigger market share. Moreover Moon (1976) remarks that many firms choose to spread the risks by branching out into other unrelated industries or trades. Furthermore, mergers and acquisitions give the opportunity to buyers to grow faster, to achieve larger scales of economies and profitability with an existed market share, to eliminate a competitor by acquiring it and complete effective

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