Pippa Corbett answered
Mergers and acquisitions are an important aspect of corporate finance, and are becoming increasingly popular options in our challenging global market environment.
There are many reasons why a company might consider a merger or acquisition - the motives range from building a brand through to cutting costs.
Reasons behind mergers and acquisitions
Every company will have its own different motives for entering into a merger or acquisition agreement.
Essentially, however, the main reason that two companies might merge is because, by working together, they can operate more profitably than when they are in direct competition with each other.
They can share resources, manage the target-market better, take control of a larger percentage of the market-share, and cross-sell to each other.
Other benefits include sharing knowledge and less competition when hiring staff - and there may also be some tax benefits to operating as a single entity.
Notable mergers and acquisitions
Whilst the above evidence might make a merger or acquisition seem like great business strategy, the success of this type of business move isn't always guaranteed.
For example, Quaker Oats Company (who manufacture the popular sports drink Gatorade) acquired competitor Snapple in 1994 for $1.7 billion.
The Snapple brand was sold by Quaker Oats a mere 27 months later, for just $300 million - which works out at a loss of $1.6 million for every day that Quaker Oats owned Snapple!
In this case, the mistake that Quaker Oats made was to acquire a company that (although similar to their own operation) they simply weren't able to manage effectively.
Unless a company can add value to a merger or acquisition, it is generally considered a bad idea to enter into such an agreement.
There are many reasons why a company might consider a merger or acquisition - the motives range from building a brand through to cutting costs.
Reasons behind mergers and acquisitions
Every company will have its own different motives for entering into a merger or acquisition agreement.
Essentially, however, the main reason that two companies might merge is because, by working together, they can operate more profitably than when they are in direct competition with each other.
They can share resources, manage the target-market better, take control of a larger percentage of the market-share, and cross-sell to each other.
Other benefits include sharing knowledge and less competition when hiring staff - and there may also be some tax benefits to operating as a single entity.
Notable mergers and acquisitions
Whilst the above evidence might make a merger or acquisition seem like great business strategy, the success of this type of business move isn't always guaranteed.
For example, Quaker Oats Company (who manufacture the popular sports drink Gatorade) acquired competitor Snapple in 1994 for $1.7 billion.
The Snapple brand was sold by Quaker Oats a mere 27 months later, for just $300 million - which works out at a loss of $1.6 million for every day that Quaker Oats owned Snapple!
In this case, the mistake that Quaker Oats made was to acquire a company that (although similar to their own operation) they simply weren't able to manage effectively.
Unless a company can add value to a merger or acquisition, it is generally considered a bad idea to enter into such an agreement.