Merge and Acquisition

Some of them were acquisitions whereas others were mergers of firms in order to earn market share and power to be able to set prices and quantities they sold which maximized their profits. As a consequence, this led to more than 100% increase in premiums consumers had to incur, whereas average income of the US population had only increased by 29% over eight years, AMA stated.

Mergers and takeovers are forms of external growth within a business. External growth occurs when one firm decides to expand by joining together with another. A takeover specifically refers to the gaining control of a firm by acquiring a controlling interest in its shares (51%). Merger, on the other hand, means the joining with another firm to form a new combined enterprise, shares in each firm are exchanged for shares in the other.

Eat or be eaten: especially in markets with a lot of structural changes and diverging sizes of companies the question arises, whether one wants to make an acquisition or be acquired.

In the book Good to Great, Jim Collins speaks of how companies misuse the acquisitions they make. Collins makes two key points to why this is the case. His first point is leaders often make these acquisitions because “doing deals is a much more exciting way to spend your way than doing actual work” (2001, p.180). Collins believe leaders initially make these deals with business consideration and are merely made because the deal can be made. When leaders make business deals for this reason, they are destined to fail.

In 2011, we acquired certain companies for an aggregate purchase price of $771 million. The primary reasons for these acquisitions, none of which was individually material to our consolidated financial statements, were to expand our customer base and sales channels, including our consumer channels and subscription entertainment services. Acquisition-related costs were expensed as incurred and were not significant.

Careful thinking about what it means for an acquisition to succeed, coupled with an analysis of why deals fail, can lead to some practical advice for managers, thus helping them to develop a more refined view. More specifically, in order for acquisitions to pay off, they ought to pass four tests. I describe the tests below, showing how each offers a way to head off common sources of merger malfunction.

The probability to ignore failure can allow it to reoccur (smaller failure growing into bigger failure). Lack of understanding and resolving a small problem can lead to bigger losses in a timely manner; an example was Jill Barad, who presented refused to acknowledge a problem before the company was acquired. It was discovered that a loss of $105 million, rather than a profit of $50 million was recorded by the company, furthermore, another loss of $184 million was recorded for the preceding quarter but still she refused to take action, she continued to commit the same error for the subsequent two quarters. Another example is the Australian HIH insurance group, the company was the largest corporate failure in Australia. It was observed that the little small signs surfaced but the management decided to ignore them and conceal them from the board of directors, likewise the board of directors too did not see the warning signs and if they did, why did they refuse to remain flaccid [2].

Mergers and Acquisitions (M&A) typically refers to a corporate fiscal and strategic set of strategies that deal with the purchasing, selling, and/or combining of different companies or pieces of companies that are able to help grow a company or experience rapid innovation with either creating another business entity or investing research and development from the ground up (Hennepopf, 2009). Modern organizations are so highly complex and competitive that the old paradigm improving efficiency and the bottom line improves, is no longer all it takes to be successful. Companies must continue to reinvent themselves, put Board egos aside and look at the marketplace, their expertise, and what they can do to retain market share. With technology changing so

lack of community and stockholder trust, loss of value, are all likely organizational outcomes of

Merger: It is the blending of two companies to form a new company where the identity of one of the firms will be lost.

Managing the process of acquisition correctly is the major challenge to make an acquisition work. A number of different factors that ranges from setting well defined goals to look for circumstances under which it will make sense to walk away must be carefully considered to make a successful acquisition. In order to carry out an acquisition activity one must first understand whether the business is ready for it. A SWOT (strengths, weaknesses, opportunities and threats) analysis can be carried out to assess the condition of the business as it might give a clear direction about how to take maximum advantage of the strengths, resolve weaknesses, exploit opportunities and avoid threats. Another way to understand whether the business is ready for an acquisition is to carrying out a strategic gap analysis. This involves identifying where the business stands now where one wants to see it after a defined period of time. By identifying the gap between the two one can decide whether acquisition is well enough to bridge the gap. However the extent of planning and research that can be done before making an acquisition decision does not always prove to be enough as situations outside of control may arise and one have to be prepared for these risks. Degree of uncertainty and the time and effort that are spent for the deal can in effect damage the performance

The Baker & McKenzie report predicts the technology sector to drive M&A deals. According to their data, the sector’s deals could reach $415 billion by next year, which would be the highest level since 2000. Michael J. Grossman from RSM US LLP has also pointed out to the strength in the technology sector’s growth – especially in terms of cross-sector deals. Fintech and technology in the automotive sector have had a strong year.

The year, 2015, has seen a resurgence in cross-regional mergers and acquisitions (Cross-Regional, 2015). Cross-regional mergers and acquisitions are on track for activity to increase by 18% year-over-year (Cross-Regional, 2015). Cross-regional mergers and acquisitions could reach $733B if current momentum continues; this would represent 23% of all merger and acquisitions activity across the globe (Cross-Regional,

According to (Baltzan, 2013) Michael Porter, a professor at Harvard Business School, identified five forces that could impede a company’s potential within the environment it operates in:

Even though the fundamental objective for mergers and acquisitions is to create value, there may be factors involved that cause the value to be destroyed. It is believed that the prime component of why acquisitions fail is due to the fact that they paid too much to control it, which in turn leaves them with huge debts. The buyer may find that the premium they paid for the acquired company 's shares (the so-called "winner 's curse") wipes out any gains made from the acquisition (Henry 2002).