Mergers, Acquisitions, and Corporate Restructurings, 6th Edition

CHAPTER FOUR4

Merger Strategy

THIS CHAPTER FOCUSES ON the strategic motives and determinants of mergers and acquisitions (M&As). It begins with a discussion of two of the most often cited motives for M&As—faster growth and synergy. Also discussed are the relative benefits of horizontal, vertical, and diversifying mergers as well as other motives, such as the pursuit of economies of scale.

GROWTH

One of the most fundamental motives for M&As is growth. Companies seeking to expand are faced with a choice between internal or organic growth and growth through M&As. Internal growth may be a slow and uncertain process. Growth through M&As may be much more rapid, although it brings with it its own uncertainties. Companies may grow within their own industry or they may expand outside their business category. Expansion outside one's industry means diversification. Because diversification has been a controversial topic in finance, it is discussed separately later in this chapter. In this section we focus on growth within a company's own industry.

If a company seeks to expand within its own industry, it may conclude that internal growth is not an acceptable means. For example, if a company has a window of opportunity that will remain open for only a limited period of time, slow internal growth may not suffice. As the company grows slowly through internal expansion, competitors may respond quickly ...