Advantages And Disadvantages Of Mergers And Acquisitions Pdf

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The Disadvantages of Merging Companies

By Sumit Sharma. Merger is an agreement or a voluntary fusion whereby two existing entities that are equal in terms of size, scale of operations, customers, etc decides to amalgamate to form into a new entity with an agenda to expand its reach into newer markets, lower operational costs, increase revenues, earn greater control over market share, etc. In simple words, it means an agreement in which two companies settle into an agreement to form a new third company or legal entity. In this, merged companies are usually of equal size and have a similar number of customers. On the other hand, in acquisition acquirer company is more significant as compared to an acquired company.

The Pros and Cons of Mergers and Acquisitions as Part of Your Growth Strategy

There are many good reasons for growing your business through an acquisition or merger. These include:. Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business.

A merger is different from an acquisition. Mergers happen when two or more companies combine to form a new entity, whereas an acquisition is the takeover of.

Seven big benefits of international mergers & acquisitions

This is a type of business alliance are used by companies either to diversify or to grow their businesses. Mergers and acquisitions are generally used synonymously; however, as defined above the two combinations are different in subtle ways. In a merger transaction, a new company is formed by two companies.

This provides a means of expansion or it can remove an obstacle to even greater financial success. Before you make that decision, however, you need to understand the pros and cons of acquiring another company that sells similar products or services that you do. First, an acquisition is the act of buying another business, whereas a merger is a process by which two companies become one company, though the ownership interests may differ. In contrast, mergers often involve a chain of command that gives the leadership of the other company some form of authority or control over how decisions are made. One main advantage of buying another business that sells similar product or services is that you can create economies of scale , which refers to the process of increasing production by lowering production costs.

Merging two companies can provide the firms with synergies and economies of scale that can lead to greater efficiency and profitability, but it is important to note that mergers can have a downside too. It may be harder for the combined organization to cooperate and communicate, and there's a risk that companies with a too-large market share will eliminate the competition and raise prices for consumers. When two firms merge, it is more than a coming together of two names or brands — it is a real merger of people who bring along a specific corporate culture. If two firms have very different corporate cultures, conflicts can arise. For example, if an innovative, entrepreneurial company with a flat hierarchy were to merge with a highly hierarchical, conservative and traditional organization, the employees in the new organization would be likely to have difficulties working together.


A merger involves two firms combining to form one larger company; it can occur due to a takeover or mutual agreement. When looking at mergers it is important to look at the subject on a case by case basis as each merger has different possible benefits and costs — depending on the industry and firms in question. Network Economies. In some industries, firms need to provide a national network. This means there are very significant economies of scale. A national network may imply the most efficient number of firms in the industry is one. For example, when T-Mobile merged with Orange in the UK, they justified the merger on the grounds that:.

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    Company will face major difficulties thanks to frictions and internal competition that may occur among the staff of the united companies. There is.