Question

‘Mergers and Aquisitions’ are inspired by a desire to diversify or achieve higher growth rate due to varied reasons. Explain any five such reasons of mergers and aquisitions.

Answer 1

Reasons of mergers and acquisitions:

1. Synergy: The difference between the merged firm's value and the sum of the individuals' values is referred to as synergy. Cost reductions and increased revenue are the results of synergy.
   For example, if firms A and B merge and the value of the combined entity-V(AB)-is expected to be greater than (VA+VB), the sum of the independent values of A and B, the combined entity is said to benefit through synergy.
2. Acquiring new technology: Businesses must continuously improve their business apps and technologies to be competitive. A business does not necessarily need to buy technology in order to enhance it. The purchasing corporation can preserve or gain a competitive edge by purchasing another business that uses cutting-edge technology. A logistics company, such as a land transport entity, merging with an airline cargo company is one example. Treo and Blackberry, which can integrate the operating cycle, will have a shorter duration. The amount of working capital increases with a longer operating cycle and decreases with a shorter cycle. The operational cycle composition for trading and manufacturing operations is depicted in the two diagrams that follow.
   
   cell phone capability and e-mail connectivity in one device; palm pilots and tablet laptops can provide benefits to both the entities.
3. Improved profitability: When businesses believe a merger will increase their profitability, they look into the possibility. For instance, Betelsmann, Pearson, and other European media groups have fueled their expansion by entering the US market through mergers and acquisitions.
4. Acquiring a competency: Businesses also use M & A to obtain a skill or expertise that the other company possesses but they lack. For instance, (a) IBM combined with Daksh to acquire the latter's competences, and (b) the ICICT ITC partnership made the retailing network and depositor base available to the merging business.
5. Entry into new markets: Many people view mergers as a way to enter new markets without any hassles. Under typical circumstances, a business can join a new market, but it might also have to contend with fierce competition from already-existing businesses and fight for market share. On the other hand, one can enter the market with more case and prevent too much rivalry if the merger method is used. For instance, this goal was accomplished by the combination of Orange, Hutch, and Vodafone.