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ANKUSH VASANT PALKAR

HPGD / OC14 / 1044

INTRODUCTION
Mergers and acquisitions are transactions in
which the ownership of companies, other
business organizations or their operating units
are transferred or combined. As an aspect of
strategic management, M&A can allow
enterprises to grow, shrink, change the
nature of their business or improve their
competitive position

Acquisitions

An acquisition or takeover is the purchase


of one business or company by another
company or other business entity. Such
purchase may be of 100%, or nearly 100%,
of the assets or ownership equity of the
acquired entity.

Acquisitions Main Benefits


(Main Reason)

To acquire complementary product, in


order to broaden the line.

To acquire new markets or distribution


channels

To acquire additional mass and benefits


from economics of scale

To acquire technology to complement or


replace the currently used one

Reasons for Acquisitions


Increase market power
Overcome entry

barriers

Cost of new product development


Increased seed to market
Lover risk vs. new product
Increased diversification
Avoid excessive competition

DIFFERNCE BETWEEN MERGER AND


ACQUISITION
MERGER
1 Merging of two
organization in to one
2 It is mutual decision
3 Merger expensive than
acquisition (higher legal
cost )
4 Through merger
shareholder can increase
their net worth
5 It is time consuming and
the company has to
maintain so much legal
issue
6 Dilution of ownership
occurs in merger.

ACQUISITION
1 Buying one organization
by another
2 It can be friendly
takeover or hostile
takeover
3 Acquisition is less
expensive than merger
4 Buyers cannot raise their
enough capital
5 It is faster and easier
transaction
6 The acquirer does not
experience the dilution of
ownership

TYPES OF MERGRS
I.

Vertical mergers

Vertical mergers occur between firms in different stages of production


operation. In oil industry, for example, distinctions are made between
exploration, and production, refining and marketing to ultimate
customer.

II.

Conglomerate mergers

Conglomerate mergers involve firms engaged in unrelated business


activates. Among conglomerate mergers, three types have been
distinguished:
Product-extension merger broaden the product lines of the firms.

A geographic market extension merger involves two firms

Finally, the other conglomerate mergers, which are often referred to as


pure conglomerate mergers involve, unrelated business activities

III.

Lending buyouts (LBOs):

It is the buyout of all shares or the assets of a company which is


already
introduced to the Stock Exchange by a group of investors through a
transaction
that is mainly financed via lending. Investors usually are financially
supported by
enterprise specializing in buyouts or by Investment Banks that
arrange such
transactions.

CAUSES OF FAILURE OF MERGERS AND ACQUISITIONS


Overpayment:
This is very common cause of failure of acquisition & mergers. De
Pamphilis D.??. (2005) found that overpayment often has destroys
consequences. Overpayment leads to expectation of higher profitability
which is not possible.
Integration issues:
Strau (2007) studied that business cultures, work ethics, etc. needs
to be flexible and adaptable. Inefficiencies or administrative problems are a
very common
occurrence in a merger which often nullifies the advantages of the mergers.

Faulty Strategic Planning and unskilled execution


Schuler, R.S. Jackson, S.E. Luo, ??..
(2004): Faulty Strategic Planning and unskilled execution often leads to
problems over expectation of strategic benefits is another area of concern
surrounding mergers.

Power Politics:
Randall S. Schuler, Susan E. Jackso??? (2001) observed that there is a
tendency to assume that power disputes are more common in the case of
acquisitions than
mergers, there is no such thing as a merger of equals.

Business valuation
The five most common ways to value a
business are:
* asset valuation
* historical earnings valuation,
* future maintainable earnings
valuation,
* relative valuation (comparable
company
and comparable
transactions
* discounted cash flow (DCF) valuation

Mergers are generally differentiated from acquisitions


partly by the way in which they are financed and partly
by the relative size of the companies. Various methods
of financing an M&A deal exist:
Cash
Payment by cash. Such transactions are usually termed acquisitions
rather than mergers because the shareholders of the target
company are removed from the picture and the target comes under
the (indirect) control of the bidder's shareholders.
Stock
Payment in the form of the acquiring company's stock, issued to the
shareholders of the acquired company at a given ratio proportional
to the valuation of the latter. They receive stock in the company
that is purchasing the smaller subsidiary.

Conclusion
As per my final and ultimate conclusion, yes, merger
of all these companies have created value to the
shareholders of the target company and acquired
company.

BIBLIOGRAPHY

www.wikipedia.com

www.google.com

www.ourfinanacebook.com

Thank
you.......!