Question

What are some valid economic justifications for mergers? Please see chapter Ch.22 for references to this topic.

Attention: Explain. Please answer in the form of paragraph, no bullet points or numerical and I will rate. Thank you in advance!

Answer 1

Companies pursue mergers and acquisitions for many reasons. the foremost common motives for mergers embrace the following:
Value creation- 2 firms might undertake a merger to extend the wealth of their shareholders. Generally, the consolidation of 2 businesses leads to synergies that increase the worth of a fresh created business entity. primarily, action implies that the worth of a integrated company exceeds the add of the values of 2 individual firms. Note that there ar 2 varieties of synergies: Revenue synergies: Synergies that primarily improve the company’s revenue-generating ability. for instance, market enlargement, production diversification, and R&D activities ar solely a number of factors that may produce revenue synergies value|and price|and value} synergies: Synergies that scale back the company’s cost structure. Generally, a prosperous merger might end in economies of scale, access to new technologies, and even elimination of sure prices. of these events might improve the value structure of an organization.
The second reason is that the Mergers ar oftentimes undertaken for diversification reasons. for instance, an organization might use a merger to diversify its business operations by getting into new markets or providing new product or services. in addition, it's common that the managers of an organization might organize a merger deal to diversify risks regarding the company’s operations.

A merger may be driven by a want to amass sure assets that can't be obtained mistreatment alternative ways. In M&A transactions, it's quite common that some firms organize mergers to achieve access to assets that ar distinctive or to assets that typically take a protracted time to develop internally. for instance, access to new technologies could be a frequent objective in several mergers. each company faces a most monetary capability to finance its operations through either debt or equity markets. Lacking adequate monetary capability, an organization might merge with another. As a result, a consolidated entity can secure a better monetary capability that may be used in additional business development processes.

If an organization generates important subject financial gain, it will merge with an organization with substantial carry over tax losses. when the merger, the overall liabilities of the consolidated company are a lot of under the liabilities of the freelance company and typically, mergers ar primarily driven by the private interests and goals of the highest management of an organization. for instance, an organization created as a results of a merger guarantees additional power and status that may be viewed favourably by managers. Such a motive may be strengthened by the managers’ ego, likewise as his or her intention to make the most important company within the business in terms of size. Such a development may be noted as “empire building,” that happens once the managers of an organization begin pro the dimensions of an organization over its actual performance.