Introduction
The merger is bringing together two or more entities and making them one big entity. The act of merger can be made possible through one entity purchasing the other, or two entities pooling their interests together as they agree. The exercise of merger does not create a new entity like what consolidation does. The merger is known to play a great role in the corporate business world (Depamphilis, 213). Every day in the business news globally, various investors are seen arranging for mergers and acquisition transactions.
Such transactions are meant to come up with larger business out of small ones. In most of the newspapers business sections, it is obvious that a headline of a merger transaction would be found. Merger and acquisition transactions are mostly big, dealing with millions or sometimes billions of dollars, and that is why they are taken so seriously (Tammy 46). It is so evident that the merger and acquisition strategies are taking the headlines of the business world.
Statement of purpose: “The main purpose of this essay is to know why there are more and more merger and acquisition transactions all over the world day by day.”
The importance of a merger transaction
The merger transaction is associated with several benefits, and that is why it has become a common practice of succeeding in business (Bragg 263). To begin with, when two companies decide to merge, there is always an increment of the combined shareholder value. The one big company created possesses a large share above the combination of the original companies. A company with a large share in the market has a strong financial base that places it at a competitive edge compared to rest in the market.
There are other major changes that take place when companies enter into a merger. The corporate culture, managerial practices, business vision, and the main ways of operation have to take a new look (Hitt 315). These changes come as a result, only individuals who are capable of adopting the change would have a chance to remain in the new company. This act leads to the need of the new company to streamline the human capital, maintaining only those employees who prove to be competent in the business.
Another major benefit of a merger transaction is for the big company to acquire the most effective technology. Currently, there is a high advancement of technology, and every company has to adopt the new technology, for it to prosper in the market. Most of the companies are merging with technology focused firms that are related to their operations, to be placed at a competitive edge (Halibozek 202).
Through the adoption and application of new technology in companies, aggressive product development, and reduced cost of operations would be realized. In the current business world, any company would be required to operate aggressively, to compete successfully with the rest in the market.
When two or more companies decide on mergers, there is an increase in market dominance and growth opportunities (Wendy 64). Through utilizing the opportunity of increased market share, the company would be in a position to raise more capital in a cost-efficient manner. For instance, in 2006, Reebok and Adidas decided to try merger transaction, and through this strategy, the big company has become a great threat to famous competitors in the market like Nikes’ market leadership (Bezner 52).
When different brands are brought together to the already existing product lines, the perception of the company may also be changed. At times, customers may complain of confusion when their products and services change within the company, but they later get used to the new set up. The customers’ perception may change towards the negative side, but through aggressive adverts by the new company, they get used and settle back for their usual goods and services.
An economy of scale is another benefit realized when companies decide on trying the merger. Through the adoption of the new technology, much of the manual work is eliminated. The big company created by merger acquires a stronger bargaining power with suppliers, compared with its competitors (Meadow 121). This is achieved through the great efforts of advertising, mass sales, hence reducing the operating costs.
A year later, after the merger of Adidas and Reebok companies, the chief executive officer of the new company announced a 10% growth (Levy 15). This growth confirmed their confidence in operating with a bigger company. This was evident that the size of the company matters a lot, especially in lowering the cost of operations.
When two companies of a different nature merge, this may not be attained automatically, not unless the merger is managed adequately. However, when the companies merging are of the same industry, enjoying economies of scale becomes obvious, as the costs are unified.
In conclusion, the main purpose of companies to think of the merger is to increase its shareholder earnings. The increment of market share can only be attained through increasing the company’s revenue or by reducing costs (Lenniel 35). Companies planning to try merger need to prepare on handling the challenges that usually occur in the short run.
Most of the difficulties associated with merger come within the first years after the transaction. This is later followed by new opportunities for business growth that leads to the increment of shareholder value.
Works Cited
Bezner, Andrew. “Mergers and Acquisitions.” Journal of business strategies (2007): 45-69.
Bragg, Steven. Mergers & acquisitions: a condensed practitioners guide. New York: Wiley and sons, 2008.
Depamphilis, Donald. Mergers, Acquisitions, and other Restructuring Activities. New York: Academic Press, 2009.
Halibozek, Edward. Mergers and acquisitions security: corporate restructuring and security. New York: Butterworth-Heinemann, 2005.
Hitt, Michael. Mergers and acquisitions: a guide to creating value for stakeholders. Oxford: Oxford University Press, 2001.
Lenniel, Becky. “Corporate finances.” Business News (2007): 24-59.
Levy, Nicholus. “Business Expansion.” Business News (2009): 10-39.
Meadow, Hilarly. “Benefits of merger and acquisitions.” Journal of corporate world (2008): 110-145.
Temmy, Edward. “Increasing Market Shares.” Financial Journal (2006): 15-55.
Wendy, Beatrice. “Mergers.” Growth strategies (2008): 50-99.