Reasons for mergers acquisitions
Reasons to acquire a company
A smaller company, such as Dell, would be unlikely to succeed with a bond issue of this size. In some ways, the underlying cause was simply bad timing because the merger coincided with a growing dot-com financial meltdown. December A company may want to expand into different markets where a similar company is already operating rather than start from ground zero, and so the company may just merge with the other company. The merger is nonetheless intended to cut cost by improving production processes through technology and capacity sharing. Mergers can also fail because the corporate cultures of the two corporations are simply incompatible. Roughly 10 months after the announcement, the two companies entered a mutual merger of equals through an all-stock deal that in turn, paved the way for the emergence of a new company—the Eteris. By Rosemary Peavler Updated January 30, Mergers and acquisitions have one underlying motive in common: to protect or improve the strength or profitability of the dominant company. It is important to understand the exact reason behind a merger to evaluate the resulting synergies and increased margins. Diversification The diversification motive holds that acquiring a diverse business outright may be a less risky way for an acquiring firm to diversify its stock portfolio than investing directly in other, often unrelated, businesses. Similarly, companies may want to combine to leverage costly manufacturing operations as was the hoped for case in the acquisition of Volvo by Ford. The expansion that results from a merger might enable the recently enlarged business to access debt and equity financing that had previously been out of reach. The acquiring company purchases a major stake in another business entity.
Mergers and acquisitions are central to the history of the automotive industry. If one of the firms involved has previously sustained net losses, these losses can be offset against the profits of the firm it has merged with.
Want to Join? Accordingly, companies coming from Asian countries that are currently experiencing strong economic growth are more predisposed toward making aggressive strategic moves—such as cross-border mergers and acquisitions.
The Risks of Mergers and Acquisitions Even when the CEO and the board of directors are honestly motivated to merge with or acquire another corporation to improve the company's financial position somehow, things sometimes don't work out as intended.
A weak or an unsubstantial reason could result in a wrong combination resulting in the huge waste of time and resources. The combined business entity would be better able to afford the necessary activities of a going concernbut operating economies can be achieved by larger mergers and acquisitions as well.
It is important to understand the exact reason behind a merger to evaluate the resulting synergies and increased margins. Sometimes the motives can be less admirable. This can easily be done through mergers and acquisitions in a very cost-effective way as compared to developing the capabilities internally.
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