Merger and Acquisition are Important Business Strategies for Success

Merger and acquisition have become common in today’s business environment. Companies use merger and acquisition as the processes of corporate restructuring. The Wall Street Journal (WSJ) regularly reports about mergers and acquisitions taking place in the business world. The objective of the merger and acquisition is to create a bigger company by combining the two companies.

Merger

Merger can happen voluntarily or by force. Two companies, either of equal size or of different sizes, joining hands willingly is termed as voluntary merger. Under voluntary merger, companies going for the merger may operate with one name, may be with the name of the larger partner of the merger or they may even form a new company with a new name. Both the companies work under one roof, with one management and one policy for carrying on with the business. The urge for voluntary merger comes from the willingness of the parties joining hands to control a bigger market share and to see that they serve the interests of their shareholders and customers in the best possible way.  A bigger company is keen to take over the market of a smaller company, which may in a business similar to the business of the bigger company. The smaller company may be operating in a smaller niche which may be of interest of the bigger company. The smaller company might be doing good business and has established its credential in the market. One way of achieving the objective is to entice the smaller company to voluntarily merge with it by giving good merger deal. Smaller company may also be happy to go in the fold of the bigger company for reasons of better technology, infrastructure, modern plat and machinery and even a large market network. They welcome the merger proposal of the bigger company. Once the bigger partner of the merger has a partnership arrangement, is easy to market their other products to the customer base easily.

Acquisition

Forced merger is termed as acquisition. In acquisition, a bigger company buys the shares of a smaller company and takes over it management. The goodwill or bad reputation of the company taken over goes with the company which has acquired the other company. The shareholders and the customers of the acquired company may cheer as they now are associated with a larger company.

In some situations, the company which acquires the small company, wants to take the advantage of the good reputation of the smaller company. On the other hand, a big company may be keen to dominate the market by their own products and technology and therefore tries to kill the competition from the products of the smaller company. One of the ways to achieve this objective is to take over the rival small company.

There are many established companies known for their technology, expertise and customer service in certain specific industry areas. The company acquiring such companies wants to take the advantage of the good name of these companies and bring them under its own banner, yet retaining the old name of the company taken over. There are number of such cases of acquisitions, where the larger company continued with the previous name of the company acquired by it. One such example is of the giant refractory manufacturer ‘RHI’ of Austria, which took over number of other well established refractory manufacturers in different regions or different countries. Didier, Germany was a well-known manufacturer of refractories for decades. RHI, Austria took over Didier but retained its name under the umbrella of RHI to cash on the market reputation of Didier. In such cases, the business model and policies of the company which acquires the smaller company continue. RHI, Austria has acquired number of other well established refractory manufacturers in different parts of the world and made its significant position as a leader in the refractory market. By the acquisition of well-established leaders in the industry; RHI, Austria has increased its image of high leadership in the market.

Why merger or acquisition?    

The idea in favor of the merger or acquisition of the companies is that the power of the merged entity is not the sum of the individual power of each company but much more than the total sum of the powers of the individual company. It can be termed as synergic benefits from the merger or acquisition.

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