According to Dorata (2012), the positive and negative impacts of mergers and acquisitions largely depend on the performance of the firms that engage in the consolidation process. In other words, if the respective firms are weak in terms of market performance, it is highly likely that consolidation may find it cumbersome to excel. Successful takeovers are mainly witnessed among firms that have already demonstrated positive growth index in the marketplace.
The study carried out in the research article by Dorata (2012) investigated a number of growth parameters that may either impede or promote mergers and acquisitions. Policy-held companies from the US were evaluated in terms of effects of mergers and acquisitions after the companies had been fully consolidated. The main purpose of the study was to assess the significance of stakeholders in regards to the impacts of mergers and acquisitions. The research findings indicated that the strengths and weaknesses of corporate mergers are remarkably influenced by stakeholders during mergers and acquisitions.
In yet another independent study by Shim (2011), the United States’ property-liability insurance organizations were investigated in terms of the effects and relationships between mergers and acquisitions. The fifteen-year study that ran from 1989 to 2004 concluded that the performance of mergers is largely affected by earnings volatility, Z-score as well as return on equity and assets. Earnings volatility is reduced by the financial performance of the acquirer. Frictional expenses are also expected to escalate after the process of a merger or acquisition. In other terms, post-merger integration has proven to be a costly affair among most entrepreneurs in America.
On the other hand, Bouraoui and Li (2014) are emphatic that capital structures are adjusted after mergers and acquisitions. This form of adjustment might interfere with the overall performance and profitability of parent companies. The study was carried out among 850 US companies. The findings indicated that negative performance was recorded among the firms surveyed in the empirical study. The latter was mainly occasioned by changes in leverage. In addition, the post-merger performance of the acquirer was found to improve owing to financial flexibility.
From the above findings, it is clearly evident that parent firms hardly remain the same after mergers and acquisitions. However, the aspect of performance among American firms that have been consolidated should be investigated further. Dorata (2012) emphasizes that the individual financial performance of the firms being acquired or merged determines the overall impact of the consolidation process.
Nonetheless, management systems and leadership structures of consolidated firms are often changed in order to conform to the new business outfit. Hence, the issue of post-merger/acquisition performance may not be uniformly applicable across the board. Most of the American firms that have been consolidated in the past have constituted new management teams in order to pursue new business agenda. In spite of the fact that capital structures are modified after consolidation of companies, a number of American firms still have the broad opportunity to leverage on the prevailing market dynamics. For instance, capital structures might remain almost the same if the acquirer or merging companies opt to raise separate funds and assets to run the new business platform.
On a final note, it is interesting to observe that mergers and acquisitions often pose both negative and positive effects to the firms being consolidated. Most of the successful American mergers and acquisitions mainly boast of strategic management and adequate capital inflow after the consolidation process.
References
Bouraoui, T., & Li, T. (2014). The impact of adjustment in capital structure in mergers & acquisitions on us acquirers’ business performance. Journal of Applied Business Research, 30(1), 27. Web.
Dorata, N. T. (2012). Determinants of the strengths and weaknesses of acquiring firms in mergers and acquisitions: A stakeholder perspective. International Journal of Management, 29(2), 578-590. Web.
Shim, J. (2011). Mergers & acquisitions, diversification and performance in the U.S. property-liability insurance industry. Journal of Financial Services Research, 39(3), 119-144. Web.