Merger and Acquisition (M&A) is a popular choice for an organization to grow in Asia. This was evidenced by the increase in the volume of the M&A deals in Asia (8%) despite a large decrease in the worldwide volume of the deals (-7%) in the year 2008 Apart from contributing to the growth of the company, M&A generates substantial positive returns to the shareholders of the company especially for the target company. 1.2
All decisions made by the management must be motivated by specific reasons. The same goes to an investment decision like M&A. Motivation for M&A by the bidding company be different from the target company. For the bidding company, rapidly changing economic environment and existence of international competition is a driver for M&A 1.3
By pursuing external growth strategies like M&As, a firm can adapt to change more quickly than the internal organic growth. A bidding company might also choose to make M&As due to ease in financing arrangement from the financial market. The desire to gain monopoly power and economies of scale also motivates bidding companies to acquire or merge with other companies.
DEFINITION OF MERGERS AND AQUISITION
There is a difference between a merger and an acquisition. Mergers are rare, as they happen between two companies that are equal in size and reach. Both companies lose their individual identities, and a third company is formed. 2.2
An acquisition, or a takeover, happens when a bigger company buys out a smaller company, with or without the smaller company's cooperation or willingness to be acquired. The usual motivations are economies of scale, killing a competitor, gaining market share and reach. 2.3
M&A can be defined in various ways. According to Ahern and Weston (2007), M&A occurs when a company purchases another company or just specific assets of the company. In addition, they state that M&A will result in a new combination of specific assets. They also claim that the definition of M&A should include mergers and tender offers. 2.4
Halpern (1983) defines merger as a legal agreement between the target and bidding firm to combine their companies. Meanwhile, tender offer is defined as "an offer to purchase a proportion of the outstanding shares of the target firm at specified terms on or before a specified date" (Halpern, 1983, p. 297).
ADVANTAGES AND DISADVANTAGES OF MERGERS AND AQUISITION
Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business. ii.
Accessing funds or valuable assets for new development. Better production or distribution facilities are often less expensive to buy than to build. Look for target businesses that are only marginally profitable and have large unused capacity which can be bought at a small premium to net asset value. iii.
Your business underperforming. For example, if you are struggling with regional or national growth it may well be less expensive to buy an existing business than to expand internally. iv.
Accessing a wider customer base and increasing your market share. Your target business may have distribution channels and systems you can use for your own offers. v.
Diversification of the products, services and long-term prospects of your business. A target business may be able to offer you products or services which you can sell through your own distribution channels. vi.
Reducing your costs and overheads through shared marketing budgets, increased purchasing power and lower costs. vii.
Reducing competition. Buying up new intellectual property, products or services may be cheaper than developing these yourself. viii.
Organic growth, ie the existing business plan for growth, needs to be...
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