Monday, April 15, 2019

Reasons Why Corporate Acquisitions Occur and Fail Essay Example for Free

Reasons Why somatic Acquisitions Occur and Fail EssayThere are a number of formers why a sure purchases a nonher companionship. Mullins (2001) stated several of these reasons, one of which includes the most apparent and important reasonto increase lucre and maximize its shareholders wealth. Elimination of competition is another reason to acquire a firm. roughly companies acquire their competitors to reduce competition and improve its position in the market. However, encyclopaedism for this purpose is against the law gibe to the antitrust acts.As a result, the acquiring firms emphasize in its press release that the encyclopaedism is not anti-competitive but a way to better serve the customers. If the U. S. regulatory agencies, however, construe that the encyclopaedism could be anti-competitive, the acquisition may be blocked. Company growth is also one of the reasons why acquisitions occur. Acquisition is also an onset used when the acquiring firm has excess cash which can be used for investments. To reduce somatic risk, firms also purchase another company which could result in improved earnings and sales stability.For instance, a clothing company specializes in swimwear while another clothing firm designs winter clothes. Thus, purchasing the swimwear company to gain profit during summer and spring is a dear(p) strategy to eliminate the sales unbalance of the winter clothing company caused by the changes in season. This example could also be used to flesh out another reason why acquisitions occurto enter another market. The target firms incur and resources, including its employees expertise and business organisation relationships, are readily available for the acquiring firm to take advantage of.Thus, quite than start a swimwear collection of its own, it would be much easier for the winter clothing company to acquire the swimwear company. A companys resources could also be the target of the acquiring firm. These resources may be tangible (e . g. , position and equipment), intangible (e. g. , trade secrets and patents), or talents of the target firms employees. Another reason cited for acquiring a firm is synergy, which is a term used to describe efficiency gained from doing more than one thing.For example, it is a good strategy for a meat processing company to acquire a leather goods manufacturer as they require the same raw material. Finally, acquisition occurs when the owners of a family-owned business wish to retire or come out the business and the next generation is not interested to continue the business (Mullins, 2001). In an interview conducted by Barnett (2004) for her article, Benoit shared another reason why acquisitions occur. He stated that acquisition allows the acquiring firms to get impudently clients.The escalating stock prices and reasonable interest rates were also go outed as reasons for the increase in the number of acquisition deals (Flanagan, et al. , 2004). Even with these good reasons, many corporate acquisitions fail. A survey conducted by the KMPG reported that 83 per centum of the acquisitions fell short of the forecasted plans (Lear, 2000). Additionally, in the book of Galpin and Herndon (The Complete Guide for Merging and Acquisitions, 2000), studies showed that only 23 shareage of all acquisitions earn their cost of capital.In addition, the stock prices of acquiring companies rise only 30 percent of the time after an announcement of the acquisition deal. 70 percent of the cases observed also revealed that synergies projected for acquisition deals are unattained. People problems and cultural issues were also noted as the most cited reasons in failed integration (cited in Flanagan, et al. , 2004). Barnet (2004) and Lear (2000) agree with Galpin and Herndons findings which cite the clash of cultures of the two firms being combined could be a reason for acquisition failure if the integration is not facilitated well.Acquisitions fail when acquiring firms do not car efully consider and analyze the culture of the two firms being combined and their compatibility in areas like personality, work styles, integrity, and trust Barnett, 2004).ReferencesBarnett, S. (October 1, 2004). Mergers its a culture issue Most of the time, the reason behind the merger/acquisition is to reach new clients. The study Public Accountant. Retrieved October 27, 2007 from http//www. allbusiness. com/management/583960-1. html Flanagan, D. , et al. (2004). Merger and acquisition opportunities due diligence activities offer internal auditors legion(predicate) opportunities to help ensure the success of proposed company integrations. Internal Auditor, August 2004, 5559 Lear, R. W. (April 1, 2000). The artic1es of acquisition. The Chief Executive. Retrieved October 27, 2007 from http//findarticles. com/p/articles/mi_m4070/is_2000_April/ai_63609542/ print Mullins, G. E. (2001). Mergers and acquisitions boon or bane? Central Wisconsin Economic Research Bureau. Special Report, Second Quarter. Retrieved October 27, 2007 from http//www. uwsp. edu/business/CWERB/2ndQtr01/SpecialReportQtr2_01. htm

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.