Merges & Acqusitions Essay

3595 Words15 Pages
1. Briefly discuss the key reasons for mergers & acquisitions including basic economic reasons and elaborate the reasons & the expectations of acquiring The Navigator by the main group,
Reasons for Mergers and Acquisitions
Why do mergers take place? It is believed that mergers and acquisitions are strategic decisions leading to the maximization of a company's growth by enhancing its production and marketing operations. They have become popular in the recent times because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalization of business is a number of economies are being deregulated and integrated with other economies. A number of reasons are attributed for the occurrence of
…show more content…
Synergy refers to benefits other than those related to economies of scale. Operating economies are one form of synergy benefits. But apart from operating economies, synergy may also arise from enhanced managerial capabilities, creativity, innovativeness, R&D and market coverage capacity due to the complementarily of resources and skills and a widened horizon of opportunities.
Synergy value can take three forms
Revenues
By combining the two companies, we will realize higher revenues then if the two companies operate separately.
Expenses
By combining the two companies, we will realize lower expenses then if the two companies operate separately.
Cost of Capital
By combining the two companies, we will experience a lower overall cost of capital.
For the most part, the biggest source of synergy value is lower expenses. Many mergers are driven by the need to cut costs. Cost savings often come from the elimination of redundant services, such as Human Resources, Accounting, Information Technology,

etc. However, the best mergers seem to have strategic reasons for the business combination. These strategic reasons include
• Accelerated Growth
A company may expand and/or diversify its markets internally or externally. If the company cannot grow internally due to lack of physical and managerial resources, it can grow externally by combining its operations with other companies through mergers and acquisitions. Mergers and acquisitions may help to
Get Access