Saturday, July 27, 2019

Benefits of Merger and Acquisition over Partnership Essay

Benefits of Merger and Acquisition over Partnership - Essay Example Mergers are necessitated by firm’s need to improve on profitability, change of management and administration system, need to conquer or acquire a significant market share and/or improve on productivity from its operations as a single entity to a stronger merged entity. The merged entity enjoys stronger management and administration base as the leadership of the merging firms take respective roles in their area of specialization and they pool their expertise towards running this new merged firm (Enkel & Covin, 2012). It should be noted that since the merging firms were operating as sole entities before, then the size and scale of operations may vary from each other and thus merger clauses are spelt out on the benefits and contributions of each firm in terms of segments and roles which in a big picture, defines the expected targets (Clark, 2009). Acquisition or simply a takeover involves purchase of a firm by another firm with an aim of maximising profits and management expertise or gaining market share and /or expansion motive. The acquiring company may decide to retain its name after acquiring the new firm or depending on the purchase clauses, if for instance the acquirer purchases a given percentage of the firm, they may decide to consolidate the two firms with a new name, new image and operation targets (Warde, 2010). Partnership can be viewed as an alliance between business entities on contractual basis and/or an exclusive bond with an aim of achieving a short term objective. Some partnerships are viewed as differentiation in which firms form alliances with an aim impressing customers and/or competitors with the size of network but with a business commitment of not allying with third party entities. Depending with the motive of the alliance, partnerships can take forms of: an exclusive supplier, customer, an intermediary channel and a vendor of a given complementary or supplementary offering of the firm’s products. For instance, a telecommunication company can partner with Internet service provider to provide a certain region or class of customers with some customized internet services for a given period. This is meant to attract more customers to the class and try to lure the internet providing firm into business with its telecommunication company’s operations within that period wi thout the provider engaging with other third parties (Deering & Murphy, 2008). In this paper we will analyse the benefits of merger and acquisition over the partnership agreements. Question 1: Under what circumstances is merging with or acquisitions of other companies a better solution than entering into partnerships or alliances with this companies? To answer this question we shall look at the circumstances that necessitate mergers and acquisitions, the benefits then compare with those of partnerships /alliances. For instance, when a firm acquires another firm on the grounds of productivity, both the acquirer and the acquired firms enjoy mutual benefits of improved productivity. For example, firm â€Å"A†, with a significant economies of scale, a stronger investment/capital base and effective management/administration acquires firm â€Å"B† which has a competitive advantage of market share due to their edge cut technological advancement in their products but with a we ak management and capital base, there are defined clauses of the acquisition in that for instance firm B has weak production methods but has a considerable market share in terms of the products it produces. Firm A’s acquisition will strengthen productivity and /or cut the total costs that could have been incurred by firm B and they benefit with the returns of their investments as there will be increased output by combination of

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