Motives of merger. 10 Motives to Merge With or Acquire Other Companies (+ Examples) 2022-12-28

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A merger is the combination of two companies into a single entity. This can be accomplished through a variety of methods, including acquisition, amalgamation, consolidation, and merger. There are several motives that may drive a company to pursue a merger.

One common motive for a merger is to achieve economies of scale. This refers to the cost savings that can be achieved by producing goods or services on a larger scale. For example, a company that manufactures automobiles may merge with a company that produces car parts. By combining the two operations, the combined company can take advantage of bulk purchasing discounts and other cost savings opportunities.

Another motive for a merger is to increase market power. By combining with another company, a firm can gain a larger market share and potentially exert more influence over pricing and other market factors. This can be especially attractive for companies operating in oligopolistic markets, where a few firms control a significant portion of the market.

A company may also seek a merger as a way to diversify its product or service offerings. For example, a company that primarily sells software may merge with a company that sells hardware. By combining their product lines, the merged company can offer a more comprehensive range of products and potentially reach a wider customer base.

Acquiring new technologies or expertise is another motive for a merger. By merging with a company that has a different area of expertise, a company can gain access to new technologies or knowledge that can help it stay competitive in its industry.

Finally, a company may pursue a merger as a way to increase shareholder value. This can be achieved through cost savings, increased revenues, or other factors that lead to increased profits and a higher stock price.

In summary, there are several motives that can drive a company to pursue a merger, including achieving economies of scale, increasing market power, diversifying product offerings, acquiring new technologies or expertise, and increasing shareholder value.

Motives of Mergers

motives of merger

Tax Issues A company with a large taxable income will look at merging with a company with large carry forwards tax losses. This is similar to Nokia in the Mobile Phone industry. They bring different small size companies together to form a larger company. Reduces the cost of operations Companies can achieve 3. A merger is a combination of two or more companies into one company.


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Reasons And Motives For Mergers

motives of merger

One finance researcher, Villalonga, believes that the diversification discount is because of incorrect use of data of several researchers Villalonga, 2004, cited in Gaughan, 2007, p143. Note that Google consolidated its businesses and restructured its organization under a single holding company called Alphabet Inc. For instance, a merged business ensures increased reputation and power, which management can see favorably. In fact, from current studies, it can be seen that there are two big types of motives, one is economic motives and the other is non-economic motives. At that time, it was a company which only had fourteen workers. All of these things could help a company's cost structure.

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Merger

motives of merger

In fact, a monopoly is an extreme example of a horizontal merger. It takes place when private company with good prospectus and eager to raise finance will acquire public listed company. Reduce redundancy and improve overall performance efficiency by utilizing each other's capabilities. This is because if General Electronic can hardly sell its military products to armies in a peaceful time, but it can also seek profitable opportunities in other field such as insurance, healthcare, plastics, energy, and so on. Transfer of technology to new markets.


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10 Motives to Merge With or Acquire Other Companies (+ Examples)

motives of merger

This can be as much about justifying the spend to their shareholders and the general public as anything else. Another side about diversification, as Gaughan 2007 pointed out, is that companies may obtain continuous competitive advantage. After mergers, the power of merged companies will get bigger. Why and which source of finance is better to reduce cost of acquisition: Mostly we acquire a business by cash, issue of shares or by debt instruments. Third, the electronic giant General Electronic GE will be given as a good example to discuss the significance of the diversification motive.

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Motives of Merging

motives of merger

How to avoid the potential risks of these economic motives and transfer them to the real profits is an issue that is open to question. Other wise by selling shares in the share market and that money can be paid to the targeted company. After acquisition MY SPACE continued with its own culture and also empowered with additional resources in order to further growth. Continued support to international clients. Expands business into new geographic areas A company seeking to expand its business in a certain geographical area may merge with another similar company operating in the same area to get the business started.

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Motives for Mergers

motives of merger

Sometimes, market power may gain from market share. How to avoid those risks, it is better to spend less time, and complete mergers quickly. It may result in employees losing their jobs. This is cheaper and less painful than the company going through the process of merging with another company to achieve synergies created by diversification. Companies do not need to take couples of year to build workshop, and recruit new employees. In 2009, Coca Cola planed to purchase Huiyuan Juice with 2. The target private company simply dissolves and little legal issues are involved.

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Mergers and Acquisitions

motives of merger

Sometimes the small firms have encountered operating difficulty and the bank has served notice that its loans will not be renewed. If a company is able to utilize its workforce, and facilities, synergy also can be achieved. Another reason for mergers and acquisitions is capacity building and sharing, especially in the aspects of manufacturing capabilities and technological competencies. As a result of the union, companies can access a larger customer base and increase their market share. A common example of such an externality is double marginalization. This are the various methods used to calculate cost of acquisition.

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Motivations for Mergers and Acquisitions

motives of merger

If the company cannot grow internally due to lack of physical and managerial resources, it can grow externally by combining its operations with other companies through mergers and acquisitions. Despite providing users with the ability to share photos and contact friends within its platform, it still acquired Instagram and Whatsapp. The acquisition of a cash rich firm whose operations have matured may provide additional financing to facilitate growth of the acquiring firm. It also results in reduced prices for the customers. Generally, the motives of mergers are to enhance the competitiveness of a new combined entity in the form of synergies, growth, etc. It is also important to take note of the shared historical beginnings of the two companies. Retained earnings: Retained earnings acts as source of funds by reinvesting profits that could have been paid to the shareholders of company.

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Merger and Acquisition Motives, Types and Strategies

motives of merger

It results in the elimination of competition; hence, economies of scale can be achieved. Opportunities are created by the synergy that would not have been possible for businesses functioning alone. For more on the topic of acquisition examples, check out the Motive 2: Economies of Scale Bigger is often better. Through a series of mergers at diversification, GE has become a diversified giant with operations insurance, television stations, plastics, medical equipment, and so on. It also serves to give some insight into the thought process behind the many deals that are closed every week.

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