Question

Mergers and acquisitions are evaluated beforehand to determine the net economic advantage they create and this forms a basis for a decision on whether to approve or disapprove any such business combination. However, there are several overriding factors that corporate leaders, investment bankers and other stakeholders must consider beyond the mere synergies that accompany mergers and acquisitions.

Evaluate these factors showing how they may alter a decision that appears to be persuasive at face value.

Answer 1

There are many drivers of M&A besides Synergies. They are:

Fast track the growth:

The acquirer can fast track the growth by acquiring a target with a new product range or a target with sales and distribution network in a new geography. This would have taken a long time and lowered the growth rate in the ordinary course if the acquirer puts its own time and energy in developing that product or accessing the market.

Elimintion of the competition

An acquirer can eliminate the competition in the existing markets or product portfolio almost immediately by acquiring the competitors. It woul dhave otherwise been a slow and time consuming process.

Achieve higher utilization of the capacity

An acquirer can immediately improve the utilization of the idle capacity by acquiring the customers of the target or entering into a new geography, by virute of M&A.

Access to a competent management

A firm can get access to a competent management almost immediately by virtue of M&A. Setting up an equivalent competent team from scratch would have otherwise taken time, resources and bandwidth.