Free Essay: Pros and Cons of Mergers and Acquisitions
Pros and cons of mergers and acquisitions are usually considered when a firm is interested in increasing profits, improve market share or even create value. Considering the pros and cons of mergers and acquisitions is important because not every venture results in profits.
When some acquisitions and mergers are unsuccessful, managers end up regretting getting involved in them. As such, it is always important to consider the merits and demerits of mergers and acquisitions before getting into one.
One of the main pros of mergers and acquisitions is network economies. There are industries where firms require a national network which implies that these ventures are significantly economical. Establishing a national network means that a firm becomes the best and most efficient in such industries.
Development and research is another pro of merger and acquisition venture. Investing in research as well as development is very important in some countries and industries because it results in the discovery of new technology or products. Through this venture, a firm becomes more profitable with more funds and skills being invested in research work and development of new products.
Through merger and acquisition a company can also reduce competition. This is because companies that are involved in mergers and acquisitions are usually in the same line or related fields of production. When a company merges with another that was competing with it for customers or clients it minimizes competition in its niche or market segment.
There are industries where mergers and acquisitions are sensible when it comes to avoidance of duplication. For instance, if two public transport firms are competing in the same route, they can merge to make service delivery easier by eliminating duplication of the service offered.
Nevertheless, mergers and acquisitions have several cons as well. For instance, if there are no sufficient regulations by the government, mergers and acquisitions will result in higher prices. This is because the newly established firm has monopoly power. Thus, the firm can increase prices at will and this can affect the consumers negatively.
Consumers are also left with fewer choices because in most cases they have only one brand to choose from. Reduced competition can also hinder innovation which will leave consumers with low quality or similar products and services.
In case of an aggressive takeover, some people will be left jobless due to the asset stripping of a company. Production in a firm can also be affected negatively if the acquisition process is not implemented properly and if the partners fail to match properly.
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Online Sources
http://www.dealcapital.com/pros-and-cons/
http://www.economicshelp.org/blog/5009/economics/pros-and-cons-of-mergers/
http://www.chiroeco.com/article/1998/JanFeb/Fin1.php
http://mflorez1.blogspot.com/2010/10/pros-and-cons-of-mergers-and.html