What are the Advantages and disadvantages of mergers and acquisition?

Answer 1

Acquisitions can help you quickly grow your business by adding new customers, capabilities, and other relationships, etc. very quickly vs. organic growth. That said, acquisitions require cash, time to find target acquisition companies, and legal work to structure the deal as well as effort for integrating the acquired business. Acquisitions can make a lot of sense, but they are not something to pursue without clearly thinking through why it might make sense and all your options to reach your growth goals.

Answer 2

Advantages of acquisitions and mergers of companies that offer complementary--but not overlapping--products are often the most successful. [A good case study is that of Pharmacia merging with Monsato, and then later with Pfizer.] More revenue can be acquired, which leads to greater profits and thus advancements in technology and research (which leads to greater innovation). Disadvantages arise when employees and clients/shareholders are kept "in the dark." They want to know the details--how EXACTLY they will be affected. Having a sense of the changes to come gives them a sense of empowerment and can serve to deepen their trust when things unavoidable become a little confusing or disruptive.

Answer 3

One of the first issues which deserves particular attention in a proposed banking merger is to be determined the incitement for the suggested union. The fact that the merger will result in a bank larger than what each individual bank was before the occurred merging is not a strong reason per se for the merger to take place. In order for a merger to be justified there should definitely be predetermined and specialized targets.

To sum up, we could name the following advantages that lead to the buyout and the merging of banks:

i. Economies of scale and of purpose

ii. Tax benefits

iii. Replacement of inefficient, in the wide competitive environment, in specialized issues management and confrontation of the increased competition

iv. Reduction of risk using new techniques of managing financial risk

v. The exploitation of the comparative advantage and the acquisition of oligopoly power

vi. Maximization of shareholders' return

vii. Infiltration into new markets and their exploitation more easily

viii. Creation of a new commercial logo and the supply of products and services at a competitive cost and high added value

ix. More efficient confrontation of the phenomenon of disintermediation

In more detail, the advantages that result from the mergers and acquisitions of banks are the following:

· The maximization of shareholders value. The buyouts and the mergers add a dynamic to the new financial group which acquires the confidence of the investors and secures the rise of its stock price. This is even bigger if an increase in share capital will follow. These expectations take effect in the short term. Constant and long term rise of the share price will be observed if the group expands its profits in the following years.

· Confrontation of the increased competition on the condition that the group will offer new and differentiated products of high quality and at attractive prices, that is to say, with a lower commission and at a lower interest rate. All these on the condition that the operational cost and especially the expenses for personnel salaries will be lowered. The cost savings could climb to 15% (Western Europe and U.S.A. Sources: Rhoades Stephen A., 1985b, ―Mergers and Acquisitions by Commercial Banks, 1960 - 1983; Clark, Jeffrey A., 1988, ―Economies of Scale and Scope of Depository Financial Institutions‖) and in some cases where the markets in which the merged financial institutions operate are related, it could rise to 25% (Balkans Source: South Eastern Europe and Mediterranean Emerging Market Economies Decade Studies 2000 - 2009 from the National Bank of Greece).

· The acquisition of oligopoly power increases the profits of the credit institutions. The banks maintain or increase the margin of the interest rates of deposits and loans in the retail banking market, while they cannot do the same in the wholesale banking market where the customers have access to alternative sources of financing.

· The need for creating large financial institutions through buyouts and mergers is also required from the advances in technology which increases the economies of scale in the production and distribution of financial services. The introduction of new technology is, in most cases, expensive and thus, more affordable by the large groups. Phone banking, internet banking, home banking, have all demonstrated greater economies of scale than the traditional banking network based on branches.

· The new tools of the financial management of risk, like derivative products and the items which do not appear on the balance sheet that provide collateral, can be applied in a more efficient way by financial institutions of a large size.

· The more efficient confrontment of the phenomenon of disintermediation, that is, the direct connection of depositors and loan recipients outside the banking system. The banks create affiliate companies which can offer alternative financial products beyond the traditional loan granting. The buyouts and mergers of the affiliates have the purpose to create new, large and all-powerful subsidiaries with the purpose of the relevant re intermediation, that is, the offering from the beginning the whole spectrum of services through banking groups.

One of the most important advantages of the creation of compound financial groups is the increase of efficiency of the financial system. This increase could be attributed to two reasons:

1. Due to the economies of scale and,

2. The participation of banks in the capital markets which increases the competition and this way lowers the commission paid for undertaking the listing of shares to the Stock Exchange, for the commissions paid to brokers, just as more generally the expenses of transactions.

The systems of the Banks of General Transactions (Universal Banks) that are created from buyouts and mergers are those which achieve the economies of purpose, improving in this way the efficiency of the financial system. The economies of purpose are achieved with various ways:

First, the banks of general transactions can combine the needs of their customers, who already receive financing by them or are depositors, for issuing or buying titles, much more easily and efficiently in comparison with investment enterprises.

Secondly, the offer of services can be done in a more efficient way through the extensive distribution networks of the banks.

Thirdly, because the returns of banking services and the revenues from work done on titles exhibit negative correlation, arises the capability of differentiating the portfolio and consequently of lowering the amount of risk of general banking transactions. The most important, though, advantage of universal banks lies in their flexibility to adapt to the changing conditions of the market. Especially, it should be p