The Strategy Of Mergers And Acquisition

1857 Words Jul 28th, 2016 8 Pages
2.1 Strategy of Mergers & Acquisition

Mergers & Acquisitions refers to corporate reorganisations that transfer an organisation’s ownership from one firm, the target, to the other known as the acquirer (Motis, 2007). The difference between a merger and an acquisition is that the former is a combination of two companies, whereas acquisition is when one company completely takeover another (Gupta, 2013.

M&A can benefit companies in various ways and the main advantage is all the potential economies of scale that can arise from the deal (Pettinger, 2012). For example, the firm benefits from cost savings that are associated with marketing and technology.

Furthermore, M&A deals provide firms access to a wider customer base and increase their market share due to the diversification and the combination of both companies (Pettinger, 2012). Also, the deals enable the firm to obtain quality staff or additional skills, knowledge and other business intelligence that it never had prior to the deal (eFinanceManagement, 2015).

On the other hand, there are various limitations to an M&A deal. For instance, diseconomies of scale can occur as the new firm can potentially lack the same level of control it had over due to the increased size (eFinanceManagement, 2015). Also, the new entity can struggle in motivating workers if the employees don’t feel part of the new firm (Pettinger, 2012).

Moreover, the merger reduces the market competition but provides the new entity with monopoly power.…
Open Document