Mergers and Acquisitions
Economics 331: Industrial Organization
By: SMRITY SHAH
BBA sec B
Topic: Mergers and Acquisitions
Introduction
Mergers and Acquisitions is referred to the aspect of corporate strategy, Finance and Management dealing with the purchase, sale, isolating and combining of different firms and similar entities that can help the enterprise grow rapidly in its sector or location of its origin or in a different sector or at a entirely new location without creating a subsidiary, a child entity or creation of a joint venture. Mergers and acquisitions are big part of the corporate finance world. Particularly in terms of the ultimate economic terms, the peculiarity between a “Merger” and “Acquisition” has become hazy in numerous respects. Some of the motives been used in a Merger or Acquisition are:
1. Economies of Scale: with the help of economic of scale, the combined company can try to reduce its fixed cost by removing the duplicate operations, activities and lowering the cost of the company in relative to the same revenue stream and therefore increasing the net profit margins. Therefore, when a company receives economic of scale it lowers the average cost per unit through increased production since fixed cost are shared over an increased number of goods.
2. Economy of scope: the cost advantage that a company gets when firm provides a variety of products rather than specializing in producing of products. This also refers to the efficiencies primarily associated with the demand side changes such as the increase or decrease the scope of marketing and distribution of different categories of products.
3. Increased revenue or market share: There is an assumption that the buyer will be fascinating a major contender and thus increase its market power to set prices.
4. Cross-selling: cross-selling is significant profit for stockbrokers, insurance agent and financial planner. For example, a bank buying a stock broker could then sell its banking
By: SMRITY SHAH
BBA sec B
Topic: Mergers and Acquisitions
Introduction
Mergers and Acquisitions is referred to the aspect of corporate strategy, Finance and Management dealing with the purchase, sale, isolating and combining of different firms and similar entities that can help the enterprise grow rapidly in its sector or location of its origin or in a different sector or at a entirely new location without creating a subsidiary, a child entity or creation of a joint venture. Mergers and acquisitions are big part of the corporate finance world. Particularly in terms of the ultimate economic terms, the peculiarity between a “Merger” and “Acquisition” has become hazy in numerous respects. Some of the motives been used in a Merger or Acquisition are:
1. Economies of Scale: with the help of economic of scale, the combined company can try to reduce its fixed cost by removing the duplicate operations, activities and lowering the cost of the company in relative to the same revenue stream and therefore increasing the net profit margins. Therefore, when a company receives economic of scale it lowers the average cost per unit through increased production since fixed cost are shared over an increased number of goods.
2. Economy of scope: the cost advantage that a company gets when firm provides a variety of products rather than specializing in producing of products. This also refers to the efficiencies primarily associated with the demand side changes such as the increase or decrease the scope of marketing and distribution of different categories of products.
3. Increased revenue or market share: There is an assumption that the buyer will be fascinating a major contender and thus increase its market power to set prices.
4. Cross-selling: cross-selling is significant profit for stockbrokers, insurance agent and financial planner. For example, a bank buying a stock broker could then sell its banking
References: I. "Mergers and acquisitions explained". Retrieved 2009-06-30. Harwood, 2005 II V. Mergers and Acquisitions Lead to Long-Term Management Turmoil Newswise, Retrieved on July 14, 2008. VIII. Lamoreaux, Naomi R. “The great merger movement in American business, 1895-1904.” Cambridge University Press, 1985. XI. Thorburn, David and Jenkins, Henry (eds)(2002) Rethinking Media Change, MIT Press, Cambridge, Massachusetts, pp.283