Question

 

1. Smaller and newer firms in the software and technology sectors are often targets for mergers and takeovers. Discuss two reasons a larger firm may view a smaller software or technology company as an attractive target for an acquisition.                                                            

 

2. Takeover offers are not always welcomed by target companies. Explain one takeover defence strategy a target company can employ to ward off an acquirer’s interest in the target firm.

 

Do shareholders of target and acquiring companies always derive tangible benefits from a takeover? Why or why not?                                                                                                     

Answer 1

a. Reasons for acquisition for smaller technology company by larger ones may be:

• Acquire new ideas: In order to sustain and grown small business often come with anew technological ideas that may impact the lifestyle of the mass. However due to financial or other constraints, they stay aback from promoting it. Thus large corporates acquire them so they acquire the idea and thus make benefits by selling them.
• Protect top management: Since smaller technological companies spend huge and hefty perks to talents especially those in the top levels of existing big companies, these big companies prefer acquiring the smaller ones rather than bargaining incentives with the executives likely to leave the organisation. This protects the company from brain drain and also beats petty competitions.

B. The Pacman strategy: Under this the target places counter offer to the acquirer's company thereby decreasing interest in making the acquisition.

C. The intention behind a merger and acquisition is to derive benefits both tangible and intangible. The tangible ones could be in the form of:

• Increased market value of shares
• Reduced competition
• Increased capacity of production
• Synergy benefits
• Taxation treatment benefits
• Increased earnings per share