Motives for Merger and Acquisitions

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Prof Sonali

M& A

3/30/12

Primary objective
22

Diversification Market Expansion Improving competitive action

Prof Sonali

M& A

3/30/12

Buyers Motives
33

To increase value of the Firms stock i.e. increase in stock price

,Price Earning Ratio

To increase growth rate of firm To make a good investment ,better use of funds by purchasing

instead of ploughing back the profit internally

Improve stability of firm's earnings and sales :Acquiring firm

whose earning sand sales complement the firms peak and valleys

Prof Sonali

M& A

3/30/12

Buyers Motives contd ..

44

To balance or fill out the product line To diversify the product line when the current product have

reached their peak in the life cycle

To reduce competition by purchasing a competitor To acquire a needful resource quickly for e.g. High quality

technology or highly innovative management

For Tax Reasons To increase efficiency and profitability ,especially if there is

synergy between the two companies

Prof Sonali

M& A

3/30/12

Sellers Motives contd ..

55

To increase value of owners stock and investment in the

firm
To increase the firms growth rate by receiving more

resources from the acquiring company

To acquire resources to stabilize operations and make them

more efficient
For tax reasons; Estate tax problem To help diversify familys holdings beyond the present firm To deal with management problems such as Management

Succession for an entrepreneur

Prof Sonali M& A 3/30/12

Advantages of Merger and Acquisitions

66

Maintaining or accelerating profitable growth of a company Enhancing profitability through cost reduction resulting form I. II.

Economies of scale Operating efficiency

III. Synergy .Diversifying the risk of the company by way of acquiring the

business of different income streams

.Enhancing the market power of the company .Reducing tax liability by way of setting off the accumulated

losses of one company against profits of another

M& A

Prof Sonali

3/30/12