Pros and Cons of M & A

When two companies combine their operations they become a merged company, and when one company is taken over by another it is an acquisition. They are often compared with a marriage as not only the individuals come together, but different families coming together and engaging in a lifelong relationship. The employees of the company become the window to the world and are the driving force of the company to charter into new lines of business with increased productivity.

Not only M & A deals are rooting for a bigger corporation they are considered to be transformative in nature. The main element in all the mergers and acquisition, cost, and profitability is kept a keen eye on; parallel the competition from other similar industry is reduced.

Major Pros of M&A:

  • a significant increase in the economies of scale, as bigger the company, higher is the profitability and increase in the overall efficiency of the business for example with major mergers happening in the telecommunication industry , lot of duplication work is wiped off, operating costs are reduced as the business are similar in nature, and an increased customer base
  • with a major part of the business is done the same way, a lot more fund can be allocated for research and development to introduce newer lines of production or increasing the existing capacity of business by advanced research which holds good for the major pharmaceutical industry
  • Depending on the type of merger, in case of horizontal mergers the economies of scale is quite extensive and a major cost reduction is possible, for example, the airline industry has a high fixed nature of cost which can be reduced with series of mergers
  • Once an M & A happens many companies become monopolies in the industry, however, they are strictly regulated and the government keeps a tab on their pricing patterns so that the consumers do not pay higher prices for the products.

Cons

  • Mergers could lead to lessening the choice of goods and services which consumers were availing had there been many companies with similar products available for them in the markets like food/clothing/retail industries
  • since two companies would have similar processes the job, duplication of labor is possible hence when two people were doing the earlier work, will be done by one thus increasing job losses, unless the employees are absorbed in other verticals.
  • Synergizing the employees to the common goal of the newly merged company is a challenging task and not all get the message clear in terms of new work responsibilities and reporting, causing internal employee grievances.