The failure risk in M&A
Abstract: With the development of business and regulation, more and more companies seek to increase revenue, search for further growth and lower cost through merger or acquisition. There are many motives behind the M&A activity. But according to in depth analysis of studies conducted from 1979 to 2000, About 14 of 24 studies report positive combined returns, it means about 40% combination didn’t bring positive returns for acquiring companies’ shareholders. In this article, I will illustrate why the acquirer didn’t perform well after the purchase and why some M&A activity didn’t come true.
Key words: Merger and acquisition, Synergies, Valuation, People, Value;
? An introduction to M&A
Companies choose merger and acquisition activities for many reasons. Briefly speaking, the companies use merger and acquisition to achieve growth, or diversify their business. They can change current operation condition through merger or acquisition. The first major spurt of mergers occurred around the 1895-1905 period and primary involved horizontal mergers . M&A generally refers to two businesses combination. And there is a distinction between acquisition and mergers. An acquisition is the purchase of some portion of one company by another. It might refer to the purchase of assets from another company, the purchase of a subsidiary. If the company buys the entire target company, the takeover should be regarded as a merger. And a merger is a combination of two companies into one larger company. So after the merger, only one company will remain and the other will no longer exist as an entity. A merger offer is referred to as either friendly or hostile. If the companies cooperate in negotiations, the offer is regarded as friendly ...