Mergers and Acquisitions

Mergers and Acquisitions Paper

How does a merge or acquisition impact a business? What benefits or consequences will a merge or acquisition have for a business? Will there be financial risks involved due to merging or acquiring a business from another country? How can the risks be mitigated? These are just a few of the concerns that an organization must consider whether they are merging or acquiring or being acquired or merged with. This paper will attempt to show the effects of mergers and acquisitions on organizations.

A merger is two organizations combining to become one and the organization that is acquiring, assumes the assets and liabilities of the organization that was merged with. An acquisition is a takeover of an organization by purchase of their assets or common stock. A merge or acquisition may impact an organization in may different ways. The main ways that an organization is impacted is with finances and assets. This can be a positive or negative impact if not researched properly and thoroughly. There are three ways that an organization can be acquired. They are by a merge of all the assets and liabilities from a target firm into the acquiring firm, purchase of stock of the target company also known as a tender offer, and the purchase of individual assets of the target.

A merger should make sense for the acquiring firm. The value of the two organizations may increase or be valuable together verses being separated. There should be a positive gain from economics of scale, economics of vertical integration, and the redistribution of surplus funds. Dubious reasons to complete a merge would include for diversification of risks or artificial growth increase. These reasons will not be beneficial to the organization in the long run.

The benefits and cost of a merge financed by cash are additional value, economic gain, reduction in operating costs and an increase in revenues. Additional values are projected increase of earnings for the organization. Economic gain allows for ability of present value of extra earnings. Reduction in operating cost will decrease due to the combining of the two organizations into one entity and an increase in revenues is increased earnings for the organization. With stock transactions, the payment is dependent on the worth of the shares after the merger is completed. The desired outcome of stock transactions is still to have economic gain when the merge is finalized regardless of how the transaction is financed.

When merging or acquiring organizations internationally, the goal is still the same. An organization wants assets that are worth more than they cost, increasing the worth of the acquiring organization. The financial risk of merging with or acquiring an organization in another country range from loss of income from an inadequate knowledge of more than one currency, problems arising due to inadequate understanding of different interest rates, and fluctuations in exchange rates. The risk of