Question

mergers and acquisitions efficient economic models, or not? Why, or why not? If not, how would you describe them?

Answer 1

In theory, M&A can affect the economy either positively or negatively. In the past, many economists justified M&A by arguing that more efficient will be the newly created, bigger companies.

But M&A also improves the size of companies, giving them a more dominant market position. This improved market energy results in prices for products of the same quality as before being greater rather than reduced. M&A significantly increase markups on average, but have no statistically significant average effect on productivity.

Thus, on average, the harmful market power effect appears to overwhelm the beneficial productivity effect. One implication of these results is that regulators should be more careful than they have been in the past in approving these transactions.

What regulators need is some way to determine the features of companies and markets that are likely to dominate the positive impacts after a deal is concluded. The empirical methods that can be used to provide regulators with this sort of data are what they do provide. A merger that could potentially result in higher prices for consumers.When corporations combine, there are usually instances of redundancy. In these cases, the acquiring company has a mandate to reduce the number of employees performing similar jobs.

A corporate merger or acquisition can have a profound effect on a company’s growth prospects and long-term outlook. But while an acquisition can transform the acquiring company literally overnight, there is a significant degree of risk involved, as mergers and acquisitions (M&A) transactions overall are estimated to only have a 50% chance of success.

In many cases, integrating the operations of two companies proves to be a much more difficult task in practice than it seemed in theory. This may result in the combined company being unable to reach the desired targets in terms of cost savings from synergies and economies of scale. Market reaction to news of an M&A transaction may be favorable or unfavorable, depending on the perception of market participants about the merits of the deal. In most cases, the target company’s shares will rise to a level close to that of the acquirer’s offer, assuming of course that the offer represents a significant premium to the target’s previous stock price. In fact, the target’s shares may trade above the offer price if the perception is either that the acquirer has low-balled the offer for the target and may be forced to raise it, or that the target company is coveted enough to attract a rival bid.