Discuss the motives underlining M&A and compare the outcomes of the Essay

Discuss the motives underlining M&A and compare the outcomes of the different methodologies used to analyse M&A - Essay Example There are two types of acquisitions; â€Å"private and â€Å"public†. This depends on whether the company acquiring is or is not listed on a public stock market. The difference between Merger and Acquisition is that Merger deals with two companies joining to become one while Acquisition has one company, which is doing the buying (Sherman and Hart, 20016:11). The work that follows discusses the motives underlying M&A, and compares the outcomes of the different methodologies used to analyze M&A. All companies that engage in any business are under one rule: grow or die. Those companies that plan to grow take away market share from their competitors look for the creation of economic profits and provide returns to shareholders (Sherman and Hart, 2006: 1). Those that lack plans on growth are stagnant, do not plan any growth strategies, they end up losing customers and market share and lose shareholder value. Mergers and Acquisitions contribute a lot to these two conditions. It help s the stronger company to grow faster than the competition and ensures quick swallowing of the weaker companies or them making irrelevant through exclusion (Sherman and Hart, 2006:1). Motives underlying M&A Different business enterprises and companies have used Mergers and Acquisitions as a means of growth strategies. ... The three differ according to the ideas behind them (Schmidt, 2010: 67) Economic motives Different authors have devised different theories to explain economic motives that encourage people to engage in Merges and Acquisitions; Efficiency theory This theory presents the motive of benefiting shareholders and managers of the acquiring company (Farschtschian, 2012:18). According to this theory, companies plan and execute Mergers and Acquisitions to achieve financial, operational and managerial synergies (Faulkner, Teerikangas and Joseph, 2012). The shareholders with this motive aim to benefit from net gains through synergy. Monopoly theory Under this theory, companies engage in Mergers and Acquisition with the motive of achieving market power. Mergers and Acquisitions under this motive may allow companies to cross-subsidize products, at the same time limit competitions in more than one market, and discourage potential entrants from the market. All of this result to monopoly power for the company. The shareholders under this motive aim at the wealth transfers from customers. Managerial Motives Theories that explain managerial motives include; Empire/Agency building theory This theory shows the motive aimed at benefiting managers. In this motive, managers plan for Mergers and Acquisitions aiming at maximizing their own utility instead of shareholders’ value (Karenfort, 2011: 9). The managers, according to this theory, plan to engage the company in mergers and Acquisition aiming at benefiting or creating their own reputation. Another motive is the need to transform to a corporate identity or recognition. This is where companies merge to gain popularity (Sherman and Hart, 2006:13). Financial motives The following theories explain the