April 20, 2020 690 views

Mergers & Acquisitions are usually Need Based, you can understand the need by this short story.

We all have heard this story of two friends "x" & "Y" . The "y" wanted to go to Mela. But the problem was they both "x" & "Y" were physically challenged. One was blind and other was without working legs. So they both were not in a condition to visit and enjoy Mela. So they combined their effort. The blind carried legless on his shoulder. So the legless would describe the route and the festivities of Mela and the blind would move to their place of interest and have fun.

Mergers and acquisitions are similar to the above story. When more than one person want to collaborate their individual strength to achieve a common goal, they merge or acquire.

Merger is a process when the persons share almost equal rights and authority in the merged entity. They also share the benefits almost equally.

When on of the person takes over the benefits and liabilities of others it is Acquisition. The payment term of the acquisition cost may be in cash or equity or their combination. But the majority remains with the acquirer.

What are the benefits of merger or acquisition –

1. Pooling of knowledge, skills and resources. Every one is not sufficient in all the fields. He is master of his side, but that alone cannot guarantee his success. So pooling provides utilisation of expertise of various fields for benefit of all.

2. Sharing of Risk – The risk of the project is shared amongst all the participants. An individual liability can be detrimental thought for moving on. Joint efforts and sharing reduce it to a great extent.

3. Building of Team – All the participants constitute a strong team with varied capabilities and strength. Their motivation is multiplied manifold when they are part of a team.

4. Overcoming individual shortfall – combining capabilities also result in shadowing partners shortfall in another field. Thus, the team as a whole is strong.

5. Display of strength to prospective investors – investors would always like to cover their risks. A team of individuals with varied and required strength generates confidence about the success of the venture.

Thus, the success of the venture increases with mergers and acquisitions. The team as a whole is capable of delivering far superior results when compared to individual performances in standalone capacity.