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Mergers and Acquisitions are expensive for corporate growth




There has been a rise in the amount of mergers and acquisitions across all sectors. In the wake of the global economic slowdown, it has helped in consolidation. A merger is the convergence of two firms, in the same or allied sectors, that see synergy in them working together. An acquisition is a purchase of a firm by another firm as a part of its strategy to either expand or consolidate. But mergers and acquisitions come at a cost to both the corporate and the customers.

Consolidation, as a result of M&As, leads to reduced competition. As the number of companies in the sector gets reduced, it is easier for the new firm to increase prices. We saw such increase in the aviation sector after the acquisition of Deccan air by Kingfisher and that of Sahara by Jet airways. There is also a chance of cartel formation when the industry has just 3-4 major players.

M&As are good for bringing stability but are bad for innovations. When two firms merge to form a bigger unit, they are more concerned about consolidation than innovation. Companies like Pepsi and Coke in the beverages industry and Google and Microsoft in the software industry have prevented the growth of smaller, more innovative firms by acquiring them. Microsoft has ensured its monopoly in the OS software through such strategies and has also been convicted in courts for these charges.

Acquisitions of bigger firms by firms much smaller than them have often resulted in big failures. These aggressive acquisitions lead to instability. Tata Steel's acquisition of Corus, a company six times its size, is one such example. Tata Steel's management is finding it hard to manage a company of this scale. Over the world M&As have also resulted in job losses for the employees.

Although consolidation and M&As are a necessity in these times of economic slowdown, but the companies must remain ethical in their conduct. When the companies become "too big to fail", they become a huge liability. They must always keep in mind that innovativeness, not size, is the answer in times of adversity.

Comments

  1. UnknownOctober 22, 2013 at 11:35 PM

    Mergers and acquisitions are a very essential aspect of business. As mergers and acquisitions usually represents anything to do with purchasing, promoting or becoming a member of businesses and companies. In common utilization the individual conditions of 'mergers' and 'acquisitions' have maintained to cloud together, but actually mean individual and unique things.

    Mergers and Acquisitions

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  2. UnknownNovember 18, 2013 at 8:31 PM

    All mergers and acquisitions are expected to be done for the advantage of the stockholders of both organizations. Actually this may not be always real. Those who have shares should properly research suggestions for mergers and products before agreeing to the shift.

    Mergers and Acquisitions

    ReplyDelete
  3. UnknownDecember 16, 2013 at 8:07 PM

    In modern company situation, mergers and acquisitions are the order of the day, and for the providers working in the B2B space, this is a fantastic opportunity to get more company, since new roles are created and company goals are expanded. This results in room for a lot of new alliances, since the company is in super speed method for at least several years. In such a situation, companies that partner with organizations dedicated to prospecting freelancing drive amazing success.

    Mergers and Acquisitions

    ReplyDelete
  4. UnknownDecember 9, 2014 at 5:37 AM

    All mergers and acquisitions are expected to be done for the advantage of the stockholders of both organizations.Thank you so much

    Mergers & Acquisitions

    ReplyDelete

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