There are no right or wrong in pursuing inorganic growth vide M&A, as Managment/Board of those companies that are in the sunset industries are coerced by shareholder to look further.
Besides the above, the following are some of KEY REASONS for executing M&A:
- Globalisation of business: Increased cross-border investments require companies in this region to remain competitive (e.g. minimise production cost and increase efficiency via maximising technology transfer). They may have to venture overseas to remain in business. Alternatively, companies may merge as a quicker way to grow bigger and stronger and to exploit synergies.
- Market positioning: Growth via M&A is seen in many instances to be quicker and cheaper than organic growth. M&A helps to capture a bigger market share or as a market penetration tactic.
- Synergy: Two or more companies’ joint effort would not only develop a competitive edge, but it can also introduce an additional earnings stream while reducing dependence on unreliable earnings sources.
- Broader strategy: Some companies undertake the merger and acquisition exercise to access new technology or to secure a source of supply or raw materials.
- Costs savings: Sometimes a company can save costs and achieve economies of scale by taking over or merging with another company.
- Opportunism: Where there is an opportunity, such as an increase in distressed or poorly managed companies in the market, it will surely prompt a strong company to take advantage of the situation to undertake a take-over or merger exercise
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Tags: Mergers & Acquisitions
