Corporate Mergers and Acquisitions
Corporate mergers and acquisitions (M/As) have become extremely common over the past 40 years in expansion of corporate size, power and economic status. Some business executives perceive mergers and acquisitions as signs of internal growth. For strategists, M/As have represented a quick way to enter new markets, control markets and acquire new technologies (Bastien 1987). Basically, a merger is the consolidation of two or more independent business corporations into a single enterprise, usually involving the absorption of one or more firms by a dominant firm (Madhurendra 2008).
On the other hand, acquisition may be defined as an act of one enterprise to acquire, directly or indirectly the shares, voting rights, assets or control over the management, of another enterprise (Madhurendra 2008). An acquisition can be forced, hostile and volatile. Most acquisitions elicit more adverse than mergers. Mergers may be broadly classified as horizontal, vertical or conglomerate. A horizontal deal involves a merger with or acquisition of a competitor. A vertical deal involves a merger with or acquisition of a company with whom the company has a supplier or customer relationship.
A conglomerate deal involves a merger with or acquisition of another company which is not a buyer, competitor nor a seller. (Cameron
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The Second Wave (1916-29) was mainly horizontal deals though there were also many vertical deals. This wave was also US dominated. The Third Wave (1965-69) was of the conglomerate era involving acquisition of companies from different industries. The Fourth Wave (1981-89) was an era of corporate raiding, financed by junk bonds. The Fifth Wave (1992-to the present) has been characterized by larger mega mergers, more activities in Europe and Asia. More strategic mergers designed to compliment company emerged in this era.
(Cameron & Green 2009:223). II. Rationale for Mergers and Acquisitions It would also be noteworthy to consider the motivations or objectives for mergers and/or acquisitions. The first and most common reason is for economic purposes. Mergers are made because the companies may want to share each other’s resources for producing or delivering a common product or service, as the case may be. Mergers or acquisitions are meant to maximize available resources and technologies by maximizing inputs to process and gaining more profits.
All of these are meant to improve a company’s economic status (Helms 2006: 548). Another objective of mergers and acquisitions is to strengthen a single corporate entity’s competitiveness in a deeply-saturated market (Helms 2006: 548). Mergers and acquisitions are perceived to be strategies for gaining new competitive strengths and new business value (Feigenbaum & Feigenbaum 2009:23). Ideally, M/As are meant to bring about the best of both “worlds” as they say.
Mergers and/or acquisitions are designed to combined two separate corporations, eliminate the unnecessary and undesirable, and create or develop the best qualities. In the four decades that witnessed corporate mergers and acquisitions, executives have viewed mergers and acquisitions as strategies for expanding corporate size, power and economic health (Bastien 1987 in Risberg 2006: 188). These business processes have also been viewed as alternatives to internal growth (Bastien 1987).