Module 25.1 LOS 20.b: Rationale for Mergers

The outlines several common reasons that mergers may occur for:

  • Synergies – the concept that the combined company will be worth more than the sum of two companies operating as separate entities. Usually refers to cost savings or revenue scaling.
  • Achieving more rapid growth
  • Increased market power – both horizontal and vertical mergers can help with this goal
  • Gaining access to unique capabilities
  • Diversification
  • Bootstrapping EPS
  • Personal benefits for managers
  • Tax benefits
  • Unlocking hidden value- sort of a private equity mindset of buying struggling but high potential firms at discounts
  • Achieving internationals business goals such as taking advantage of market inefficiencies, working around disadvantageous business policies, apply technological advances to new markets, achieve product differentiation and provide support to existing multinational clients.

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