Mergers and Acquisitions
With the changing business environment, companies are adopting new modes of operation aimed at improving business and also ensuring growth of their businesses. All companies adopt new operation modes through which they can achieve business expansion, improved profitability, maintain competitive advantage and increase revenue and sales. Mergers and acquisitions are performed through various strategies involving different aspects of organizational protocols. Despite the similarity between mergers and acquisitions, the two aspects are different through their operation principles and gains achieved from their accomplishment.
Distinction of mergers and acquisitions is also based on other factors such as the size of companies involved among other factors. Mergers occur when two companies join to share all the functions of operation. This means that the two companies agree on various aspects such as the payment options, trading of shares and the name of the merged company among other features. An acquisition on the other hand occurs when one company completely takes over the assets of the other company.
Acquisitions can be friendly or hostile. The hostile acquisitions are forceful while the friendly acquisition is based on an agreement between companies. Alternatively, when a smaller company acquires the assets of a larger company, the acquisition is considered to be reverse. The history of mergers and acquisitions can be traced back to the first wave which occurred between 1897 and 1904. This wave comprised of monopolies that wished to maintain their market impacts (Wang, 2007).
The factors that drive the formation of mergers and acquisitions include changes in monetary policies, GDP and interest rates among other factors. The second wave of mergers and acquisitions occurred from 1916 and was vertical in nature. The main objective was to expand organizations. The third wave was driven by rise in interest rates, and stock rates while the fourth wave was mainly international takeovers that were hostile in nature. The final wave of mergers and acquisitions occurred due to globalization, favorable stock markets and deregulation. This final wave has continued to the present date (Dirk and Jianjun, 2012).
Mergers and acquisitions are considered very relevant in the contemporary world due to the various benefits associated with them. For instance, mergers and acquisitions result in increased business value through enhanced achievement of long term objectives and maximization of the return on investments (Vojislav et al., 2011). The aims of companies entering into mergers and acquisitions involve reduction of liabilities and expenses while increasing profits and revenues and expanding the business and the customer base. Through the achievement of all these objectives, it is possible to gain maximum improvement of the business environment.
In addition to this, mergers and acquisitions also result in the increase of shareholder value through reduced liabilities and expenses for the organizations. Mergers and acquisitions also reduce expenses in time and money incurred for the development of new business branches hence resulting in high business returns and capital investment opportunities. The use of mergers and acquisitions is also beneficial to the business environment since it helps to diminish competition through leveling the playing field in the industry (Harford, 2005). When large companies come together in mergers and acquisitions, monopolies are created resulting in the reduction of competition.
In conclusion, the concept of mergers and acquisitions has gained expansive application in the business world. However, hostile takeovers still pose a challenge in business resulting in the formulation of regulations which ensure that fairness is maintained in the formation of mergers and acquisitions. The need for more informed decision making also makes mergers and acquisitions in the contemporary business environment to be based on real data which reduces the potential for failure.
Dirk, H., and Jianjun, M. 2012. ‘The dynamics of mergers and acquisitions in oligopolistic industries.’ Journal of Economic Dynamics & Control. 36, 585–609.
Harford, J. 2005. ‘What drives merger waves?’ Journal of financial economics. 77, 529–560.
Vojislav, M., Gordon, P., and N.R.Prabhala. 2011. ‘Post-merger restructuring and the boundaries of the firm’. Journal of Financial Economics. 102, 317–343.
Wang, J. 2007. Motives and Effects of Mergers and Acquisitions. Masters. The University of Nottingham.
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