Following a growth through acquisition strategy is not a new way for companies to increase their market presence. While open competition is one way for companies to gain market share and increase profit, eliminating competition through acquisition is a time-honored method for achieving the same goal. During the 1980s, mergers and acquisitions were characterized by companies "raiding" otherwise profitable organizations, then selling off the newly acquired company for ready cash. The result was an increase in profits to the acquiring company, but, in many cases, companies were unduly closed down, eliminating jobs and contributions to the economy. This research examines the mergers and acquisitions market, including past actions, current proposals, defenses that companies can mount to avoid hostile acquisition, and considers the outlook for this often misunderstood strategy.
Mergers and acquisitions are a time-proven method for organizations to gain entry to markets, to increase their present market share, and to implement economies of scale. For some companies, mergers and acquisitions offer diversification of risk as the companies are able to enter markets where they did not previously compete and where the risks are different from the company's primary (core) business segments. In this way, larger companies can withstand shocks to one business segment which might pose critical problems to smaller competitors in that industry.
Mergers occur when two companies combine their operations to form an essentially new organization comprised of individuals from both companies. A number of individuals may lose their jobs as the result of the merger, which typically involves companies in the same or similar industry. Stock is often used as a way to bring the two companies together, and mergers are typically friendly combinations. Acquisitions, on the other hand, are the purchase of one organization by another. As with mergers, ther...