Why do companies merge with or acquire other companies? By Rob Renaud Updated December 28, — 1: Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses. A company that merges to diversify may acquire another company in a seemingly unrelated industry in order to reduce the impact of a particular industry's performance on its profitability.
What Motivates a Company to Takeover Another Company In business, especially in the modern markets, the usage and application of the term takeover is very common. It is used in reference to when one business assumes the control or the management of another business.
There are different factors and reasons that motivate businesses to take over other businesses.
Different definitions have been brought forward for the term Takeover. Therefore, to effectively define the term in this article, we will present three of the major definitions for the term and analyze them so as to come up with the most effective definition of what a Takeover is.
Investopediaa leading resource for reference of business terms and ideas, defines the term takeover as when a bidding company is allowed to acquire a target company.
Upon the acquisition, the bidding company becomes responsible for all the operations of the target company. The Financial Dictionary defines the term takeover as a general term usually referring to the transfer of control from one group of shareholders to another group of shareholders.
It further defines it as a change in the control interests either through a friendly or hostile acquisition of a corporation. The definitions provided above all point out to three major issues; assumption of control, a bidding company; a target company and acquisition of control.
From these three issues, this article crafts the definition of the term takeover as: A takeover is when a bidding company acquires a target company and as such, there is a change in controlling interests where shareholders of the bidding company assume the control and the management of the target company.
Takeovers are some of the most important decisions that a person or a management team can make in business practice. Therefore, there is need to exhaustively analyze trends in the market before deciding to acquire and take over the management of another business.
It is important to consider how a takeover can help the ambitions of the business at hand before deciding to venture into one. There are a number of factors that motivate businesses to start off with takeovers of other businesses. These factors vary from one transaction to another depending on the ambitions behind each business in the market.
The current article lists and explains most of the common of those factors. Enhancing business abilities Modern markets demand that operating businesses are well endowed with abilities to effectively outperform competing businesses.
A successful business, at least from the perspective of the modern market, must be marked by efficient production, effective marketing and high sales and turnovers.
However, it is quite challenging to ensure that a business has all these abilities without proper investment. Therefore, businesses usually opt to take over other businesses in order to facilitate the efficiency with which they produce, the effectiveness with which they market their products and services and to increase their sales and turnovers.
Logically, taking over another business comes with the opportunity of increasing the abilities of the business.
Takeovers come with ready alternative measures that can be used to sort out some management or business issues that previously hampered the attainment of the maximum potential of the acquiring company.- objective of firm is to make the most efficient use of the firm's resources and thereby maximize the value of the firm for its owners, that is, to maximize shareholder wealth.
Reasons Why A Business Seeking To Maximize The Wealth Of Its Shareholders May Wish To Takeover Another Business procurement and use of funds with an aim to use business funds in such a way that the firm’s value and earnings are maximized.
Shareholders spend money to employ the executives with the desire that they will bring much higher dividend in the long run, act based on the interests of shareholders for the only purpose to maximize shareholder wealth. Mergers and acquisitions sometimes happen because business firms want diversification, such as a broader product offering.
If a large conglomerate thinks that it has too much exposure to risk because it has too much of its business invested in one particular industry, it might acquire a business in another industry for a more comfortable balance.
Reasons for a Takeover. indicating the target does not wish to be purchased. A company may act as a bidder by seeking to increase its market share or achieve economies of scale that help it. the management may be merging to increase their own prestige. Clearly, managing a company with assets of $ million is more prestigious than managing a company with assets of $ Start studying FIN_Chap2. Learn vocabulary, terms, and more with flashcards, games, and other study tools. "Maximize corporate wealth": A) is the primary objective of the non-Anglo-American model of management. Which of the following is a reason why managers act to maximize shareholder wealth in.
Shareholder wealth is the appropriate goal of a business firm in a capitalist torosgazete.com a capitalist society, there is private ownership of goods and services by individuals.
Reasons for a Takeover. indicating the target does not wish to be purchased. A company may act as a bidder by seeking to increase its market share or achieve economies of scale that help it.