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 mergers and acquisitions. For example, it is suggested that mergers and acquisition are intended to:
• Limit competition
• Utilize under-utilized market power
• Overcome the problem of slow growth and profitability in one's own industry
• Achieve diversification
• Gain economies of scale and increase income with proportionately less investment
• Establish a transnational bridgehead without excessive start-up costs to gain access to a foreign market
• Utilize under-utilized resources - human and physical and managerial skills
• Displace existing management
• Circumvent government regulations
• Reap speculative gains attendant upon new security issue or change in p/e ratio
• Create an image of aggressiveness and strategic opportunism, empire building and to amass vast economic cowers of the company.
Are there any real benefits of merger? A number of benefits of mergers are claimed.' All of them are not real benefits. Based on the empirical evidence and the experiences of certain companies, the most common motives and advantages of mergers and acquisitions are explained below:
• Maintaining or accelerating a company's growth, particularly when the internal growth is constrained due to paucity of resources;
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