Merger and Acquistion

The following are important reason for Merger and Acquisition


1.Economical

Sometime it is more economical to buy a business then to establish a new business. The buying a new business save many cost . The examples of cost which can be saved by acquiring a business include feasibility study, installation of machinery,  Import duties , etc.


2.Quick Entry

The acquiring a business provide you a quick entry in the market while establishing your own business require a great deal of time. some business require even 5 to 10 year to establish.


3.Use Goodwill

The other reason is to take advantage of goodwill already created by the business. it is proven facts that it takes a long time to build goodwill in the market.


4.Remove Competition

The one reason is that you want to be a market leader and you buy a major operator in the market.


5.Diversification

The diversification has proved to be an effective stratgey against business and financial risks. The over reliance on one business may create serious threat in future.


6.Utilization of surplus fund

The organization may have surplus fund in hand and in accordance to financial management rule the extra fund must be invested in new project to maximize wealth.if organization find good opportunity of earning it can invest those surplus fund.

7.Acquiring competent Management

The one of the reason may be to get entire management of the other company, This is the case if other company is performing reasonable well then organization may decide to buy all management by buying the entity.

8.Improve Balance Sheet Asset Side

The earning is good but assets are also important if organization want to back up the earning with assets then a new organization with health balance sheet asset side may be acquired.


Important Consideration for Merger Decision


1. Price of acquisition

The most important question is that what should be the price of acquisition . The many factor play role in determination of the price of the acquisition.These factor includes the earning of the entiry , the asset of the entity, future prospects of the entity, Goodwill of enity in the market.

2. Employee React

The other important factor that how employees of acquired entity will react and how those employee will be integrated in the existing company. 

3. Business Practices introduction

What is the plan for implementing the existing business practices and cultures to the new acquired entity. 

4. Financial recognition

The financial recognition of new acquired entity in the books of account is also a challenging task.

5. Management integration

The integration of exiting management with new entity management is also be considered. The management working under different culture and organization have different attitude and styles and it is not easy to covert the old cultures and styles in new one.