Advantages and disadvantages of mergers and acquisitions
Answers
Answer:
Advantages: Following are the some advantages
The most common reason for firms to enter into merger and acquisition is to merge their power and control over the markets.
Another advantage is Synergy that is the magic power that allow for increased value efficiencies of the new entity and it takes the shape of returns enrichment and cost savings.
Economies of scale is formed by sharing the resources and services (Richard et al, 2007). Union of 2 firm’s leads in overall cost reduction giving a competitive advantage, that is feasible as a result of raised buying power and longer production runs.
Decrease of risk using innovative techniques of managing financial risk.
To become competitive, firms have to be compelled to be peak of technological developments and their dealing applications. By M&A of a small business with unique technologies, a large company will retain or grow a competitive edge.
The biggest advantage is tax benefits. Financial advantages might instigate mergers and corporations will fully build use of tax- shields, increase monetary leverage and utilize alternative tax benefits (Hayn, 1989).
Disadvantages: Following are the some difficulties encountered with a merger-
Loss of experienced workers aside from workers in leadership positions. This kind of loss inevitably involves loss of business understand and on the other hand that will be worrying to exchange or will exclusively get replaced at nice value.
As a result of M&A, employees of the small merging firm may require exhaustive re-skilling.
Company will face major difficulties thanks to frictions and internal competition that may occur among the staff of the united companies. There is conjointly risk of getting surplus employees in some departments.
Merging two firms that are doing similar activities may mean duplication and over capability within the company that may need retrenchments.
Increase in costs might result if the right management of modification and also the implementation of the merger and acquisition dealing are delayed.
The uncertainty with respect to the approval of the merger by proper assurances.
In many events, the return of the share of the company that caused buyouts of other company was less than the return of the sector as a whole.