[amar]motives behind mergers

8/8/2019 [Amar]Motives Behind Mergers

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By Amar Arora

MBA-IB


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refers to the aspect of corporate strategy,

corporate finance and management dealingwith the combining of different companies

that can aid, finance, or help a growing

company in a given industry grow rapidly

without having to create another business

entity.


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Economy of scope

Economy of scale

Increased revenue or market share

Cross-selling

Synergy

Geographical or other diversification

Resource transfer

Vertical integration

Horizontal integration Growth

Tax evasion

Technology sharing

Guard against acquisitions


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This refers to the fact that the combined company

can often reduce its fixed costs by removing

duplicate departments or operations, lowering the

costs of the company relative to the same revenue

stream, thus increasing profit margins.


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The common sources of economies of scale are

purchasing

managerial

financial

Marketing

technological


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This ss s that the er ill eabs rbi aajor ompetitor and thus increase its mar et

power (bycapturing increasedmar et share) to set

prices.


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For example, a bank merging with a stock broker

could then sell its banking products to the stock

broker's customers, while the broker can sign up

the bank's customers for brokerage accounts. Or, a

manufacturer can acquire and sell complementary

products.


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Corporate synergy occurs when corporationsinteract congruently.

A corporate synergy refers to a financial benefit

that a corporation expects to realize when it

merges with or acquires another corporation.There are two distinct types of corporate

synergies:

Revenue synergy

Management synergy


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A revenue synergy refers to the opportunity

of a combined corporate entity to generate

more revenue than its two predecessor stand

alone companies would be able to generate.For example, if company A sells product X

through its sales force, company B sells

product Y, and company A decides to buy

company B then the new company could useeach sales person to sell products X and Y

thereby increasing the revenue that each

sales person generates for the company.


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Synergy in terms of management and in

relation to team working refers to the

combined effort of individuals as participants

of the team. Positive or negative synergy can exist. The

condition that exists when the organization's

parts interact to produce a joint effect that

is greater than the sum of the parts actingalone.


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This is designed to smooth the earnings results of a

company, which over the long term smoothens thestock price of a company, giving conservative

investors more confidence in investing in the

company. However, this does not always deliver

value to shareholders


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Resources are unevenly distributed across firms

and the interaction of target and acquiring firm

resources can create value through eitherovercoming information asymmetry or by combining

scarce resources.


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Vertical integration is the degree to which a

firm owns its upstream suppliers and its

downstream buyers

These are of three types:

Backward vertical integration

Forward vertical integration

Balanced vertical integration


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1. Reliance infratel and GTL merger

This deal would help reduce Rcoms debt

which has shot up following the 3G auctions.


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Trying to have a common source for purchase

of raw materials, consumables and otherstores because that brings down the cost to a

great extent and gives them a bargaining

power with the supplier.


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Voltas international ltd was catering to

various international markets hence themotive behind the deal for Voltas ltd was to

capture these markets. Their vast skill and

experience was also a major factor for

merger.


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Became an it giant (larger customer base)

One stop shop spanning system, printers,

services and more

HP gained service business, distributionnetwork specially for consumer desktops, its

hand helds and of course business customers.

Compaq has good distribution network

globally.


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To achieve economies of scale.

BPL- 7 lakh subscriber base

Birla-tata-AT&T- 3.8 lakh subscriber base.


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Ramanujan

Merger, acquisition and corporate

restructuring by Krishnamurti and vishwanath

Merger and acquisition ( ICFAI Books)

Corporate mergers and acquisitions

Merger, acquisition and takeovers by

H.R.Machiraju.


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Thank You

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