- We have already discussed the definitions of mergers and takeovers in a separate post
- We have also pointed out that while these two have similarities they are not one and the same thing
- Both mergers and takeovers can be referred to as integration
- It was also revealed that these integrations can be described in a number of ways:
- Friendly or hostile
- Horizontal
- Vertical where we have two types of vertical integration i.e. backwards and forward
- Conglomerates where two seemingly unrelated businesses integrate. An example is when Kingdom Bank, Miekles Africa and Tanganda came together during the 2008 crisis in a bid to boost their chances of survival
- In the exam, it’s always advisable to use examples of mergers and acquisitions
- In this post, we will now examine the advantages and disadvantages of mergers and takeovers i.e. integration
Advantages of Mergers/Takeovers:
- Economies of Scale: Mergers and takeovers can result in cost savings through economies of scale, where the combined company can benefit from larger production runs, shared resources and increased bargaining power with suppliers.
- Increased Market Share: Mergers and takeovers can result in increased market share, allowing the combined company to gain a larger share of the market and potentially increase its competitiveness.
- Diversification: Mergers and takeovers can allow companies to diversify their product or service offerings, expanding their reach and reducing their reliance on a single product or market.
- Access to New Markets: Mergers and takeovers can give companies access to new markets, either geographically or in terms of new customer segments or distribution channels.
- Synergy: Mergers and takeovers can create synergies where the combined company can achieve greater overall efficiency and effectiveness than the sum of the two individual companies.
- Improved Financial Performance: Mergers and takeovers can lead to improved financial performance, such as increased revenue and profitability, and a stronger balance sheet.
Disadvantages of Mergers/Takeovers:
- Cultural Clashes: Mergers and takeovers can result in cultural clashes between the two companies, which can lead to integration challenges and decreased employee morale.
- Integration Challenges: Mergers and takeovers can be complex and time-consuming to integrate, especially if the two companies have different operating systems, policies, and procedures.
- Regulatory Issues: Mergers and takeovers can face regulatory hurdles, including antitrust concerns and approval requirements from government agencies.
- Price Premiums: Mergers and takeovers can result in price premiums, where the acquiring company pays a premium for the target company, which can lead to a decrease in overall shareholder value.
- Increased Debt: Mergers and takeovers can result in increased debt for the acquiring company, which can negatively impact the company’s financial stability.
- Strategic Misalignment: Mergers and takeovers can result in strategic misalignment between the two companies, which can lead to conflicting goals and ineffective decision-making.
