Question

What is the difference between merger, acquisition, and downsizing? why would a company pick one option over another, what role does technology and innovation play? please be thorough in your answer.

Answer 1

Merger: Merger is a term used when two or more company combines to form one. Mergers are usually done by companies to expand their business and market reach. For example: recent merger of Vodafone with the Aditya Birla owned company Idea. One the other hand amalgamation refers to combination of two or more companies to form a completely new company. An amalgamation is different from merger because under amalgamation neither of the company survives that is the legal entity does not exist and a completely new entity is formed all together. Under amalgamation all the assets and liabilities are transferred to the new entity. Merger is only an attempt to increase the reach of the company.

On the other hand, in the situation of recession, the company tries to reduce its cost. One method of reducing such cost is downsizing. Downsizing is the situation where companies tries to reduce its employee cost by reducing the number of employees. Further, some companies just layoff low performing employees each year to maintain their quality of workforce.

Under normal situations, a company would prefer merger over amalgamation as it combines the synergies of the companies that are merging themselves. However, when the market condition is bad no company would go for merger or amalgamation as firstly it would involve huge cost and secondly any other company would also be in the same situation. Thus, under such situation, downsizing is preferred.

A company which has a better technology or innovation is likely to get a hire value as other companies would find it useful for their business as well. Such innovation can make them market leaders and help them gaining market share.