1. Merger and acquisitions have been implement by many firms especially in the global sectors. Merger and acquisitions becoming more popular as it achieved 40 to 45 percent companies who adapt it globally.
Merger is the integration of operations between two firms that create high competitive advantage because they share their resources and capabilities. As we know, they are several types of merger which comprises of conglomerate mergers, horizontal mergers, market extension, product extension and vertical mergers. Mergers allows company to integrate even though they are not in the same industry. Companies see this as a chance for them to develop their business as well as taking it as on opportunity to increase their company profitability…show more content… There a few reasons for merger and acquisition which are it can increase the market power, get control of entry barriers, and increase level of diversification.
The first reason is merger and acquisition are very popular among companies is because it can increase the market power. Market power is the company's ability to increase market prices for goods and services offered from existing prices. The profitability of a company depends on the market power which are generally implemented by a firms which are highly competitive. For example, Nestle SA strengthen its market position by increasing the market price for one of their products which is their baby-food line.
Secondly, firms can get control of the entry barriers. In all sectors of industry especially business industry, competitors will develop the entry barriers. There are a few examples of entry barriers which are high cost to start up a business and the difficulties that makes the a new competitors hard to enter the industry. However, when a firms merge with other companies, they can overcome the barriers to entry easily without having to bear it all alone. For instances, Walt Disney company and American Broadcasting Company. These two firms have unrelated business activities but able to merge in order to achieve their vision and…show more content… There are a seven problems in achieving acquisition success which are integration difficulties, inadequate evaluation of target, large of extraordinary debt, inability to achieve synergy, too much diversification, managers overly focused on acquisition, and too large.
The first problems is the obstacles to integrate between firms. This is because each companies have different system especially for their financial and control. Moreover, the merge companies have to develop their corporate culture and implement the other firm’s culture to their company.
Furthermore, managers paying too much attention on the acquisition. Personally, in order to make an acquisition, the information and data are not gather as a whole by the managers. There are only four main activities that manages should involve searching for possible candidates, completing effective due diligence, preparing for negotiations with the target firms and managing the integration process post-acquisition.
Next, mostly acquisition produce a large company which can cause dis-economies of scale at a certain point. This happen because of the size of the companies that led and cause disadvantage for the firm. The bigger the size of a company, the more cost that they need to incurred. For example, Citigroup had to reduce some of its assets as they need to escape from the problems that they