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Merging and Acquisition(M &A), Joint Venture? Advantages? DisAdvantages?

Merging and Acquisition(M &A)

What is Merger?
Merging is an process where two companies come together as an single company with and intention to carry on the operations combined in future for further growth.

Why Merger is done?
Merging is done with an view to expand its operations usually beyond the boundaries which the company individually lack in experience or finance to carry, and of course to make more profits.  This is usually done among those firms which are equal in the assets/reputation of each respective firms.

Key Points:
After Merger, the management will be established combined.
Since, both the companied will be equal in size, so no domination.

Types of Merging
Horizontal Merger?
Merger between two companies which compete each other in a single market serving an same product or services is called horizontal Merger.

Vertical Merger?
When two companies which produces two different products to finished one product, such sort of companies merger is called Vertical Merger.

Conglomerate Merger?
Two Companies which has nothing in common in their operations/product and services, if these firms get merged, it is called Conglomerate Merger.

What is Acquisition?
Acquisition is an process where, one company(usually bigger than the targeted company) purchases another companies assets/shares and the business operations of the company are carried on by the Parent company under the  name of the Parent company or with same existing name.

Usually this process with be carried through bidding process, those who bid the highest is eligible to acquire the company.

In simple terms, the larger firm takes over the smaller firm.

Types of Acquisition?

Part Acquisition.
In Part acquisition, the parent company purchases 51% or more shares of the other company, so that the decision making rest with the company.

Full Acquisition.
Here the complete acquisition of the company will be taken placed.

Advantages of Merging and Acquisition (M &A):
Merging and Acquisition (M &A) is Tax-free.
It Reducing costs/ Cost Efficiency (Here applies the Economy of scale)
Increase in share value of the company.
New Market Invasion/Scope.

Disadvantages of Merging and Acquisition(M &A)
Monopolistic competition may arise.
Less taxes, since the company can show more loss in tax liability, if prior the sister company facing losses.

Joint Venture:
In joint venture, two or more companies come together and carry on operations in both or single of its origin place. The profit and losses with be share as per the shares.

Joint Venture Example: Tata Teleservices (74%) and NTT DoCoMo (26%) got merged and started an company called Tata Docomo.

Recommended Posts:
Top 10 Merger and Acquisitions(M&A) of 2008 and 2009


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