Reasons for Mergers & Acquisitions

Topics: Mergers and acquisitions Pages: 3 (935 words) Published: March 15, 2011
The following are the other important reasons for mergers or amalgamations: 1.      Economies of scale. An amalgamation company will have more reasons at its command that the individual companies. This will help in increasing the scale of operations and the economies of large scale will be available. These economies will occur because of more intensive utilization of production facilities, distribution network, research and development facilities, etc. these economies will be available in horizontal mergers were scope of more intensive use of resources is greater. 2.      Operating economies. A number of operating economies will be availed with the merger of two or more companies. Duplicating facilities in accounting, purchasing, marketing, etc. will be eliminated. Operating inefficiencies of small concerns will be controlled by the superior management emerging from the amalgamation. The amalgamated company will be in a better position to operate than the amalgamating companies individually. 3.      Synergy: Synergy refers to the greater combined value of merged firms than the sum of the values of individual units. It is something like one plus one more than two. It results from benefits other than those related to economies of scale. Operating economies are one of the various synergy benefits of merger or consolidation. The other instances which may result into synergy benefits includes, strong R&D facilities of one firm merged with better organized facilities of another unit, enhanced managerial capabilities, the substantial financial resources of one being combined with profitable investment opportunities of the other. 4.      Growth: A company may not grow rapidly throw internal expansion. Merger or amalgamation enables satisfactory and balanced growth of a company. It can cross many stages of growth at one time through amalgamation. Growth through merger or amalgamation is also cheaper and less risky. A number of costs and risk of expansion and taking on...
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