Mergers And Acquisitions Essay

1025 words - 4 pages

The growth and development of companies through mergers and acquisitions is currently one of the most common businesses extension. Associated with external growth policy, mergers and acquisitions are a means by which companies implement the strategy of specialization, vertical integration or diversification. Mergers and acquisitions have increased considerably in recent years and have become important movements in major groups, but also in smaller businesses.

Indicated by the exact meaning of the word, the term merger and acquisition(M&A) describes two different circumstances. A merger is the unification of two or more firms into a new one, while an acquisition is one company’s purchase of the majority of the shares from another(Sherman, 2006). A M&A is thus characterized by the fact that after unification there are fewer firms than before. After an acquisition, however, the target firm can either remain autonomous, or be partially or wholly integrated into the new parent company, although the firms remain independent entities from a legal point of view.

The company’s management must determine new ways of development to ensure long-term growth and the most effective way to launch a new product line, to enter new markets and the right usage of all resources available.
In order to establish the potential profitability of a deal, the criteria used in the selection process of the aimed company are:
• the turnover
• its history
• geographical area
• type of customers
• its position on the market
• technological, industrial, commercial and financial potential
• financial risk
• competitive environment
Sherman (2006) claims that various factors lead to the decision of going international among which the most important are: the strong competition, the changing technological environment and consumer preferences, the need to share the risk and costs. He also states that it will cost you less “to buy brand loyalty and customer relationships” than to make new ones.
According to Frankel (2005), the players in this deal are the buyer and the seller. The buyer refers to the entity, the corporation that makes an acquisition in order to boost its business. On the other hand, the seller is “the one-time” player, the decision to sell the company being the last decision for the shareholders. As a result of such transaction, the company can be partially or fully sold.
Based on their economic characteristic, the mergers and acquisitions can be grouped in four categories: horizontal, vertical, conglomerate and those of diversification named market extension mergers or product extention mergers.
Horizontal mergers are related to firms in competition, being a means of reaching higher value for certain functions such as research and development or commercial. Acquiring competitors doesn’t have as only objective technical and economic improvements, as a result of achieving economies of scale.
Within globalization, some horizontal mergers or acquisitions were carried...

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