Question

Discuss Mergers and Acquisitions

Answer 1

Mergers:

In a competitive business world, all firms strive to win the business war and reach a market position so that brand name is established among the customers. However, there are many external threats that affect a firm's business progress such as new entrants, business expansion plans by survivors, business growth of a well-established firm in the same industry, etc. To overcome all these external threats, small businesses or growing businesses may not have sufficient internal strengths such as human resource capital, working capital dollars, amount for further capital investment and expansion, sufficient assets, etc. So, two or more businesses with same or more or less equal wealth would join their hands and create a new firm. This process is called as mergers. In case of mergers, the merging firms would lose their existance and a new firm would come in to existance though people engaged in the new firm would be mostly the same people who were in the merged firms.

Acquisitions:

Acquisiton is also a kind of merger activity only but the difference between merger and acquisition is that in case of acquision, a big business firm acquires a small or a group of small firms so that after acquisiton, only the big firm would be existing whereas the small firms which were acquired by that big firm would lose their existance. Big firms do acquisition to expand their business operations and to reach greater market share by reducing competitions from the small firms. Here also, people who were working in the firms, which were acquired by big firm, may continue to work in the firm which acquired such small firms or may not. After acquision, big firm's wings would have grown in the market.