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The Future of Mergers and Acquisitions
Whilst Ronald Reagan was in the White House in 1980, the USLCB Commission tweaked and updated its policies on an ongoing basis so that there would be more acceptance of horizontal mergers and acquisitions. Every individual state has reciprocated by cementing their own regulations regarding antitrust to probe these types of dealings. However, in the case of mergers and acquisitions there has been a big growth throughout the U.S market including: healthcare, telecoms, electric and utilities and national defense contractors.
The term “Mergers and Acquisitions” indicates the type of corporate logistical planning, and the combining of separate contrasting entities and complementary companies that can make improvements in; finance, growth in existing and new markets, without the need to set up a completely new firms or a subsidiary or joint ventures. The main difference been a merger and an acquisition has become rather murky in a few ways, especially including the final result, although it has not gone away in all segments and places.
Throughout the course of an acquisition proper and valid information and documentation transfer is difficult due to the changing of important information.
Concerning any firm that has been purchased, their traditional and cultural ways of going about their way of business is far more important than dotting the I’s and crossing the T’s..
If the purchased company is a large firm or corporation, problems can arise when knowledge and skills have to be exchanged and the general integration.
The critical aspect of any acquisition is that these skills and capabilities of the acquired management and executives are fully utilized and retained.
The most difficult bringing together is the transfer of different skill sets, technologies, knowhow and also the capabilities, due to the process of acquisition application. When an acquisition is pushed through at a fast pace, for whatever reason, then the risk of losing such skills is higher.
Mergers and Acquisitions happen for many reasons, commonly to bring to the fore additional skill sets and knowledge, the keeping and growth of these is imperative. It is most important that the key management of any transfer during an acquisition is done correctly.
Due to the increase of Mergers and Acquisitions it has cemented just how important the key stake holders are in the whole process. It is pivotal that the buying firm fully comprehend this relationship and make sure it blossoms into a positive thing. It has been commonly found that the pretense of retaining independence and keeping old identities is the basis to this.
Both mergers and acquisitions tend to be utter in the same speech but there are nuances to them that separate them. The whole legal ideals and the business concept of a merger also vary. Legally the term deals with statutory merger, corporate mechanics, statutory consolidation, with no overall power grab of the target firm and the acquiring company. Commercially, merger is slightly different, as it can be done by itself apart of the corporate mechanics by ways such as a, statutory merger, acquisition, and triangular merger etc.
If a firm takes another over and then declares itself as the new owner, the purchase is called an acquisition. Legally the purchased company ceases to exist, and the purchaser then swallows the business and the purchasing company’s securities continue to be traded.
When a merger takes place it tends to be friendlier, it happens when two firms concur to go forward as one new entity rather than be two separate firms. Commonly this is known as a merger of equals, with both firms being roughly the same size. Both firms’ shares are surrendered and a brand new company stock is then issued. This is quite a rare event and mergers of equals rarely happens.
Usually this is normally a case of perception when a merger of equals is announced, in real terms one firm will buy another and as part of the deal’s conditions the purchased company is allowed to proclaim that it has merged. The reasoning behind this is that being bought out holds many negative connotations, therefor calling it as a merger makes the deal sound better.
Mergers also happen when both the CEO’s see the benefit of a union and concur that it is for mutual benefit if they merge. However, if no agreement has been achieved and one CEO does not want to be purchased, the deal then becomes an acquisition.
Traditionally most mergers and acquisitions have been pushed by investment banks, but due to the rapidly growing amount of mergers and acquisitions and the complexities, there has been an increase in the growth of specialist M & A advisers. The big difference here is that these advisers do not provide any funding, only advice. Occassionally these advisers are called Transition Companies.
During the years 1895 to 1905 in America, there was a time of business known as the Great Merger Movement. During this movement, it was a common occurrence for small firms with small market share to preserve themselves with common companies to form powerful corporates to dominate the markets utterly. It was said that nearly 2,000 separate firms vanished in these sort of consolidations, and the resulting companies acquired great chunks of the market stock in which they were opened, the means for doing this was called “Trusts”.
Then in 1900 the value of the companies purchased in mergers was 20% of gross domestic production. In 1900 the value was 3% and the two years from 1998 is had changed to around 10%. Big corporations such as GE, U.S Steel, and Du Pont came through during the Great Merger Movement, and they remained dominant in their business areas through 1929 and in some cases still today, this managed this by growing through technological advances or their services, production, products, operating, patents and brand recognition.
There were other successful firms operating during 1905 that had good market share but did not have the competitive advantages of DuPont etc, and were not so lucky. International Paper and American Chicle’s business went down and they quickly lost market share by 1929, due to competitors joining and amalgamating and transforming their firms’ into slicker operations. The firms that amalgamated were large producers of similar type products that exploited the benefits of large volume manufacturing.
These mergers were also capital-intensive, due to high fixed costs when sales fell these companies continued to manufacture and to sell their products and they also reduced prices, mostly the mergers were “quick mergers”. These deals were with companies that had little real commonalities and different types of management structures. Due to this the success was not as rewarding, and the resulting firm often suffered higher costs of production and other related expenses. So these mergers were not done for efficiencies but rather because it was simply a trendy thing to do which was to merge at that particular time. Certain firms with niche products, like specialist medical instruments, earned very high profits on margin rather than large volume sales and did not partake in the great merger movement.