Merger and Acquisition

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Merger and acquisition are usually used by companies in order to bring about quick growth. According to Armstrong (2014) global mergers and acquisitions activity reached $3.5 trillion (£2.25 trillion) in 2014. However, merger and acquisition are high-risk strategies.

Definition of merger and acquisition

Both merger and acquisition are heavily used in academia and in corporate world. Sometimes, these two terms are used interchangeably. However, there are some differences which exist between the two. A merger is the combination of two previously separate organisations, typically as more or less equal partners (Johnson, Whittington and Scholes, 2011). On the other hand, acquisition is where strategies are developed by taking over ownership of another organisation (Johnson, Whittington and Scholes, 20O6, p.349).

What do companies like to achieve from mergers and acquisitions?

Faster growth

Academics and business analysts regard merger and acquisition as inorganic and speedy growth strategies. Companies can grow very quickly both in domestic and international markets through these strategies. They can achieve growth faster with these strategies than internal efforts (organic growth).

Additional products/services

Companies may sometimes decide to increase their portfolio and they can do so by merger and acquisition. Google taking over YouTube is an example in this regard. Microsoft’s acquisition of skype serves pretty much the same purpose. YouTube is in fact now playing a key role in the continuous success of Google.

Future Potential

Future is certainly uncertain. However, forecasting is there to help companies have an idea about future. Some products may not perform great today; however, they may have a great potential tomorrow. This is exactly what Facebook saw in WhatsApp. The company took over WhatsApp in 2014 with $19 billion.

Corporate image

Merger and acquisition enhance the power and image of companies and their owners. Google taking over Motorola with $12.5 billion, Facebook taking over Instagram with $1.0 billion, and many other similar examples demonstrate the determination of companies towards their growth strategies and the owners’ future visualisation.

Others

In addition to the above, there are many other reasons as to why a company may decide to merge with another or take over another. Merger and acquisition may sometimes be necessary to get into international markets. Likewise, companies may decide to increase the utilisation of current resources through merger and acquisition.

In a nutshell, merger and acquisition are rapid growth strategies. However, a note of caution is that merger and acquisition efforts fail very often. Pfizer’s £53bn approach to AstraZeneca failed, so did the Kiddicare adventure of Morrison. Therefore, business strategists need to consider a variety of factors before making any decision. Any hasty move without much preparation and due consideration may turn out to be disastrous.

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The publication date: 18 November 2016

Further reading/references

Armstrong, A., (2014) Will there be merger mania in 2015? Available at http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11311657/Will-there-be-merger-mania-in-2015.html (Accessed 30 April 2016)

Johnson, G., Scholes, K. and Whittington, R. (2006) Exploring Corporate Strategy: Text and Cases, 7th Edition, UK: Prentice Hall

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Author: M Rahman

M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.