Thursday, January 19, 2012

What is the Significance of Mergers and Acquisitions?

Mergers and Acquisitions are when two become one. Two businesses, usually in the same industry, unite to pool their resources. There are various types of acquisitions and mergers which are an increasing business trend in various industries.

These acquisitions and mergers can provide numerous advantages for the merging parties. For example, the most obvious advantage that a business merger brings is an expansion of the financial scope and resources of the newly merged business. Acquisitions and mergers can therefore provide new possibilities.

Diversification is another buzzword of mergers and acquisitions. When two businesses with no common business areas merge this is conglomeration. If the two businesses are more unique then a merger can ensure a more diverse product portfolio. This is especially the case if the target business is in a different industry. 

Mergers and acquisitions are also another factor behind business monopolies and uncompetitive industries. From a more general economic perspective monopolies can be considered a disadvantage of acquisitions and mergers. For example, the Microsoft OS monopoly ensures that there is little in the way of alternatives to the Windows OS, except perhaps the Linux OS and the Apple Mac OS.

As such, the more general economic advantages of acquisitions and mergers are more debatable. Industries can become less competitive as smaller businesses merge with larger ones. However, for the business stakeholders mergers and acquisitions can have undoubted advantages, especially their investors if the business is a public limited company.


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