MERGERS & ACQUISITION

Business Organisation & Policy (Mergers & Acquisition)



Table of Contents

Introduction1

Mergers and Acquisitions1

Successful Mergers and Acquisitions2

Speedy entry to new product/market areas2

Accretion of knowledge, skills3

Access to intermediaries, technology, scarce resources3

Financial engineering opportunities4

Cost advantages/scale, scope, experience4

General synergies5

Unsuccessful Mergers and Acquisitions5

Overpayment5

Management Hubris5

Cultural Fit Problems6

Poor Integration6

Disruption of Existing Activities7

Non-Transferable Human Resources7

Diseconomies of Scale7

Examples of Unsuccessful Mergers8

Examples of Successful Mergers9

Summary10

Conclusion11

Business Organisation & Policy (Mergers & Acquisition)

Introduction

This paper discusses the mergers and acquisitions, why they fail and succeed. Furthermore, several theories and researches of Lorenz, Kitchin, and Porter identify that most of these mergers and acquisitions go into failures (Porter, 1987, pp. 43-44; Kitching, 1967, pp. 84; and Lorenz, 1986, pp. 32). McKinsey illustrates that 60% of the acquisitions are failed in terms of annual cost of capital that is incurred against the returns (Nguyen & Kleiner, 2003). But companies and their managers still take this risk. The goal of mergers and acquisitions is the improvement in results that is the profits and operational efficiencies. However, the data points in opposite direction. Empirical studies have shown that, mergers and Acquisitions deal largely failed for one reason or another. Despite this many managers still go this strategy and risk their financial assets and forgone an opportunity cost. These reasons or factors that lead to successful mergers and acquisitions are numerous, cited differently by authors. However, certain points are well supported by theories and examples. These points are combined in this paper. There are many factors jointly responsible for success (Rein, 2009); hence their role and examples are given in the end to represent their joint role. Similarly, the second group of factors that lead to failures of mergers and acquisition also combine to create failures. While the contribution of each factor might be different in examples, these factors are jointly responsible for failures.

Mergers and Acquisitions

Mergers and Acquisitions (M&A) are corporate acts of buying, diving, selling, or combining of different companies which enable the firm to grow in the existing geography/market or new geography/market. Mergers and acquisitions are used together because of the blurred differentiation between the two.

Successful Mergers and Acquisitions

Speedy entry to new product/market areas

The landscape of markets is changing fast. New products and services quickly enter the market and wipe off the old products and services. In this kind of situations, there is a strong need to enter new product and market areas. Mergers and acquisitions provide a good opportunity to do so. The strategy can be used by companies in developed market to augment their portfolio of products in existing markets of focus. A typical example is of Idec and Shire Pharmaceuticals, Idec was focused in United States and Shire was well entrenched in the European Markets. These two companies engaged in strategic therapeutic segments which fuelled growth by strategic acquisitions in therapeutic segments.

In contrast, the emerging market based companies see acquisitions and mergers as a way to enter the stable operating environment bearing developed markets. In this way, companies from small fragmented markets worldwide stable revenue growth propelled ...