Rationale for mergers, Financial Management

Assignment Help:

Rationale for Mergers

Many of the motives behind mergers of firms are discussed hereunder:

Growth

Growth is the most general and important motive for mergers. Merging firm provides an immediate growth opportunity to a firm which was earlier operating within a single country. There are various factors which encourage a firm to merge internationally for growth. They are:

  • A firm having surplus cash flows operating in a slow growing domestic economy can invest its cash in a fast growing economy.
  • Firms, which operate in a domestic market i.e., too small to accommodate the growth of the corporates or where the domestic markets are saturated, enter into foreign markets.
  • Overseas expansion may enable medium-sized firms to attain the size necessary to improve their ability to compete.
  • Size enables firms to achieve the economies of scale necessary for effective global competition.

Technology:

Technology affects mergers in two ways:

  • A technologically superior firm may make acquisitions in another country in order to exploit its technological advantage.
  • A technologically inferior firm may make acquisitions in another country to enhance its competitive position both at home and abroad.

Technological superiority can be exploited very easily without a lot of cultural interference unlike specific management functions like marketing, labor relations etc., which are environment-specific, and are not readily transferable to other surroundings. The acquirer may intentionally select a technologically inferior target, which because of its inferiority is losing market share and market value. By bringing in technology into the acquired firm, the acquirer can improve its competitive position and profitability both at home and abroad. On the other hand, the acquirer firms with surplus cash, but technologically inferior can obtain the necessary technology by acquiring a firm with superior technology to remain effective as competitors on the worldwide scene.

 


Related Discussions:- Rationale for mergers

What do you meant by negative externalities, Question 1: i) Is ther...

Question 1: i) Is there a stable and inverse link between unemployment and inflation? ii) The government announces that expansionary policies will be enacted in a view

Features of government securities, Features of government securities: ...

Features of government securities: Issuers The government securities are issued by the central government, state governments, and semi-government authorities like municipa

Explain the term- authorised and paid-up share capital, Explain the term- A...

Explain the term- Authorised and Paid-up Share Capital Number of shares of stock provided for in Articles of Association of a company is the authorized share capital. This figu

Total revenue change, Write an essay explaining that the quantities of good...

Write an essay explaining that the quantities of goods and services that we can produce are limited by both our available resources and by technology. Assume we want to increase

Collar, Collar A collar can be established by holding a share, along w...

Collar A collar can be established by holding a share, along with purchasing a protective put and writing a covered call, where both options at out-of-money.. For Example

Legal obligations of corporation is the cost of equity zero, If dividends p...

If dividends paid to common stockholders are not legal obligations of a corporation, is the cost of equity zero? Explain your answer. Even though common stockholders don't have

Partial correlation coefficients , In multiple correlation equations we are...

In multiple correlation equations we are often interested in finding out how much of the variation in the dependent variable is explained by one independent variable if all the oth

Operating cycle, applicability of operating cycle in poultry

applicability of operating cycle in poultry

WACC, WHY ORDINARY SHARES DIFFER IN DIFFERENT COMPANIES

WHY ORDINARY SHARES DIFFER IN DIFFERENT COMPANIES

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd