Question

Finance 600 :

As part of the financial planning process, a common practice in the corporate finance world is restructuring through the process of mergers and acquisitions (M&A). It seems that on a regular basis, investment bankers arrange M&A transactions, forming one company from separate companies. What are the advantages and the disadvantages of a merger? In your response, provide an example of either - a merger that was successful, or one that was unsuccessful.

Answer 1

The advantage and disadvantages of merger and acquisition are depending of the new companies present moment and long haul strategies and endeavors. That is because of the factors preferences' market environment, Variations in business culture, acquirement expenses and changes to financial force encompassing the business captured. So following are the some advantages and disadvantages of merger and acquisition (M&A) are:

Advantages: Following are the some advantages

The most common reason for firms to go into merger and acquisition is to merge their capacity and power over the markets.

Another advantage is Synergy that is the magic influence that allow for increased value efficiencies of the new substance and it takes the shape of profits enrichment and cost savings.

Economies of scale is formed by sharing the assets and administrations (Richard et al, 2007). Association of 2 firm's leads in overall cost decrease giving a competitive advantage, that is feasible because of raised purchasing force and longer creation runs.

Decrease of hazard utilizing innovative methods of managing financial hazard.

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 one of a kind innovations, a large company will retain or grow a competitive edge.

The greatest advantage is tax benefits. Financial advantages might instigate mergers and corporations will completely construct utilization of tax-shields, increase monetary leverage and use alternative tax benefits (Hayn, 1989).

Disadvantages: Following are the some troubles experienced with a merger-

Loss of experienced specialists aside from laborers in leadership positions. This sort of misfortune inevitably includes loss of business understand and then again that will be stressing to exchange or will solely get replaced at decent value.

Because of M&A, employees of the small merging firm may require exhaustive re-skilling.

Company will face major troubles thanks to grindings and internal competition that may happen among the staff of the assembled companies. There is conjointly danger of getting surplus employees in some departments.

Merging two firms that are doing similar activities may mean duplication and over capability inside the company that may require retrenchments.

Increase in expenses might result if the correct management of modification and also the implementation of the merger and acquisition dealing are delayed.

The uncertainty regarding the approval of the merger by appropriate assurances.

In many occasions, the arrival of the share of the company that caused buyouts of other company was not exactly the arrival of the part in general.

Vodafone and Mannesmann Merger

The merger between Vodafone and Mannesmann occurred in 2000, and was worth $180 billion. This is the largest mergers and acquisitions transaction in history. Vodafone, a mobile operator based in the United Kingdom, acquired Mannesmann, a German-owned industrial conglomerate company.