Mergers & Acquisition Essay

3019 words - 12 pages

1. IntroductionDiversification, mergers or acquisitions since the 1980's, and even more in the late nineties, has become a growing trend for companies, both large and small, domestic and foreign, to form strategic alliances within their particular industries. There are many specific goals that companies may be looking to achieve by doing this, but the main underlying reason is to guarantee the long-term sustained achievement of "fast profitable growth" for their business. They have to keep up with a rapidly increasing diversified global market and increased competition. Nowadays, with the struggle for competitive advantage becoming stronger and stronger, it is almost essential to form alliances. Diversifying and expanding techniques such as mergers and acquisitions are very popular methods for forming these alliances. Basically stated, A merger is the combining of two or more companies into a single corporation. This is achieved when one company or business purchases the property or some other form of assets from another company. The result of this action is the formation of one corporate structure. This new corporate structure retains its original identity. An acquisition is a little different from a merger in that it involves many problems being "dissolved", and an entirely new company being formed. Much research and planning is required in the early stages of these processes, which starts with an acquisition strategy used in trying to find a suitable company to merge with.I have chosen to assess the automobile industry focusing on predominantly horizontal integration as one the preferred method of affiliation by global automobile players.2. Successes and failuresSome mergers, like marriages, are made in heaven. The union of two companies augments revenues, boosts profits, generates shareholder value and wins applause on the stock exchange. Other mergers - also like marriages -are made in hell. Turf battles break out, management deadlock ensues, revenues fall, the stock plummets, and inevitably a slew of shareholder lawsuits challenges the ill-matched combination. The hard part, of course, is being able to predict ahead of time which scenario will play out after an acquisition. The challenge in making an acquisition work, which determines whether the future will be heavenly or hellish- is managing the process correctly. This involves paying close attention to factors ranging from setting clear-sighted goals and knowing what to look for during due diligence to recognising the circumstances in which it makes sense to walk away. While there is no golden nostrum that suits all situations, experts explained that focusing on a few basic principles could greatly improve the chances of making a merger/acquisition succeed.In selecting a target when embarking on an acquisition strategy, companies should consider whether the acquisition would let them extract value in three ways. First, the takeover should make it possible to lower costs through economies...

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