The purpose of this article is to understand what drives large corporations to mergers and acquisitions. It is noted that large corporations are intensifying their efforts to merge or acquire various firms which strategically important to the growth of the company. This paper will examine the reasons behind the increasing trend of mergers and acquisitions and its true benefit to the shareholders.

1. A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions 1
A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions by Larger
Corporations
Charm Rammandala
California Intercontinental University

2. A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions 2
Abstract
The purpose of this study to understand what drives large corporations to mergers and
acquisitions. It is noted that large corporations are intensifying their efforts to merge or acquire
various firms which strategically important to the growth of the company. This paper will
examine the reasons behind the increasing trend of mergers and acquisitions and its true benefit
to the shareholders.

3. A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions 3
A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions by Larger
Corporations
It is widely accepted that the primary objective of a for profit firm is to maximize the
shareholder’s wealth. Managers take various steps such as invest in research and developments,
diversify the business, set up overseas plants to achieve this objective. Another popular strategy
is to merge and acquire companies.
Firms used mergers and acquisitions as a part of their company strategy as early as 1900 to
gain a competitive advantage. However, it was relatively rare and at the time main objective was
to create a monopolistic company by buying the competitors who the management thought could
be a threat to growth of the company. Beginning of 1990 this trend significantly changed and
firms started to merge and acquire other companies to achieve various strategic goals. Some of
those strategic goals included create a synergy, diversification, growth, backward and forward
integration, enhance bargaining power and reduce competition (Cartwright 2002).
Driving forces of Mergers and Acquisitions
Synergy is one of the primary objective of a merger and acquisition. The idea behind is to
combine the business activities and achieve economic of scale. Essentially, a firm will attempt to
merge or acquire another firm which is a strategic fit with complementary strengths and
opportunities (Frankel 2005)
M&A is an effective business strategy to be used when a firm is focusing on diversification.
Thought process behind the diversification is to reduce the impact of a particular industry’s
performance on its profitability. Growth is another important motivation for a firm to focus on
M&A. through the economies of scale and using the in-house expertise, growth can be achieved

4. A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions 4
Forward and backwards integrations also one of the driving factors on mergers and
acquisition. Instead of relying on other companies to either supply important raw materials or
products to the company, management could decide to take control of the supply chain and
merge or acquire key suppliers to the company. This will ensure undisrupted supply of raw
materials which would help to run the operations smoothly (Agrawal 1992)
Ultimately the overall objective of the M&A is to eliminate the competition. Many mergers
and acquisitions allow the firm to eliminate or significantly reduce the future competition and
increase the market share for its products. This will essentially result in improved bottom line
which would reflect in the share price (Frankel 2005)
There are further advantages firms can enjoy through mergers and acquisitions. Among them
are tax gains, reduce operating cost by eliminating duplication of work, reduce cost of capital,
greater efficiency. All these attributes will lead to a higher profit which is important to increase
the shareholders’ value
The impact of mergers and acquisitions to the firm’s culture
The decision of merging or acquiring a company is a very important decision to the board.
There are various metrics to evaluate the offers and foresee the future growth potential.
However, regardless of all the preparations, reaction of the employees is unpredictable. The
reactions are two fold and first one is to be aware is how the employees of acquiring company
embrace the newly integrated employees of the acquired company. Similarly, employees and
managers of acquired company need to fit in to the new culture(Cartwright 2002).
It is important to conduct consistence workshops and training sessions to ingrate employees
of both cultures to get familiarize with the way of work of new work settings. This will lead to

5. A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions 5
better integration relatively quick adaptation. Failure to do so may result in loss of revenue and
in worst case failure of the merger which lead to losses(Frankel 2005)
Conclusion
Benefits of mergers and acquisitions are manifold. M&A can generate cost efficiency through
economic of scale, enhance the revenue through gain in market share and potentially generate tax
gains and increase the value generation. It is often noted that after a successful merger or
acquisition, the value of the firm is higher, essentially improving the shareholders’ value.

6. A Detailed Study to Understand the Motivations Behind the Mergers & Acquisitions 6
References
Agrawal, A (1992) The post-merger performance of acquiring firms, Journal of International
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Frankel, M (2005) Mergers and Acquisitions basics, Journal of financial Management. Retrieved
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Cartwright, S, (2002) Thirty years of mergers and acquisitions research. British Journal of
management. Retrieved from ProQuest virtual reference library http:/gale. proquest.com
(06/18/2016)
Millard, A, (2008) Analyzing the fair market value of assets & the stakeholder’s investment
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