However, they may also result in job losses, inflate prices for certain items and reduce consumer choices for certain products. The main ways that an organization is impacted is with finances and assets. An ill-timed merger can quickly diminish the strength of both the acquiring and acquired brands. On the other hand, sometimes, like mixing milk and an egg the result is magic. Disadvantages: The bigger the business the harder to control More decision making and more risks More expensive e. Thus, the time during which is required for such re-skilling, the company will have to suffer the non-productivity of those employees, which indirectly would cast a burden on the capital of the company.
The ambiguity resulted by badly handled management issues in mergers and acquisitions have been the foremost grounds for these collapses. Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. If you acquire a company that has a way of doing things that conflicts with yours, the employees of the acquired company may bristle at your management style. For example, your original company may embrace the objective of expanding in to new markets, while the acquired company may be in pullback mode, with the objective of reducing costs. Two major oil companies Exxon and Mobil decided in 1999 to merge their operations. Cost can be either a disadvantage or an advantage depending on location, industry and how the merger is handled.
Acquisitions may also help companies meet and even exceed stakeholder expectations. The mergers and acquisitions are a way which company can get more rights to control another company by buy shares and funds. A company needs to understand the process and the resulting advantages and disadvantages well to appreciate the complexities involved. This essay will make a statement about the advantages and disadvantages of mergers and acquisitions. They may be performed either to benefit the public or just top-level executives and shareholders: The underlying motive ultimately determines the success of the merger and the overall reputation of the resulting organization. Others may employ subscription models popular in the software industry. Locally in Zambia , Zambeef Products Plc acquired Amanita Ltd and Amanita Ltd ceased to exist independently after that and became a subsidiary of Zambeef Products called Zamanita.
The potential for distraction is greatest—and most profound—after the deal is done and the focus moves to integration. This provides a means of expansion or it can remove an obstacle to even greater financial success. Phone banking, internet banking, home banking, have all demonstrated greater economies of scale than the traditional banking network based on branches. But when is it advantageous to proceed with an aggressive growth strategy of mergers and acquisitions, rather rely on disciplined? The growing debt may outpace new revenues. Culture and Integration Challenges Culture and general integration issues are huge challenges.
In both cases, the ambition was to become global companies in quick time. These can have multiple advantages, ranging from immediate increases in revenues to improving long term financial outlook to making it easier to raise capital for other growth strategies. Strategic mergers and acquisitions offer a solution to a different business problem. In addition to some other trends, such as privatisation, deregulation and corporate restructuring, globalisation has encouraged an unparalleled surge in the cross border merger and the acquisition activities Finkelstein, n. Are they no longer an accounting firm? You can guard against this by being clear about the culture you want and using all tools at your disposal to ensure you achieve it.
A merger can lead to less choice for consumers. This paper will examine the sensible and dubious reasons for mergers and acquisitions and the benefits and costs of the cash and stock transactions. The reduction in staff reduces the salary costs and increases the margins of the company. Reverse takeovers, when a smaller company acquires a larger one, are even worse. Post-merger, these separately owned firms become a single entity and are jointly owned.
Before the acquisition , Arcelor was the largest steel producer in terms of turnover and second largest in terms of steel output, whereas Mittal Stand first in terms of output. Synergies and economies of scale This is usually one of the primary motivating factors for small companies as they have limited resources and usually deal with financial constraints. These can have multiple advantages, ranging from immediate increases in revenues to improving long term financial outlook to making it easier to raise capital for other growth strategies. 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. Market entry can otherwise be a costly proposition, involving market research among other upfront expenses, and take years to build a significant client base.
The acquisition, on the other hand, occurs when one company purchases another company and thus becomes the new owner. In some cases, competitors can be eliminated entirely via acquisition. Finally, mergers can limit duplicated efforts by eliminating market competition between two previously competitive organizations and enable market regulation. However, they may produce financial fallout, be expensive to carry out and produce integration problems between the two combining organizations. For example, in some industries, the government have price controls to limit price increases. Developing new core competencies may compromise existing competencies. This creates added costs to the process which may cause the risks of a merger or acquisition to be greater than the benefits that could be experienced by the deal.