3.2 Mergers and Takeovers Flashcards
Merger
When two or more companies combine to create a new company.
Reasons for mergers and takeovers
Economies of scale
Synergies
Elimination of competition
Takeover
One company purchases another company.
Synergies
Benefits which occur from two companies merging such as increased revenue, cost savings or improved product offerings.
Horizontal integration
A company taking over a company which is at the same level of the value chain.
Vertical integration
Refers to a merger or takeover where the company is at a different place in the supply chain.
Forward Vertical integration
Involves a merger or takeover with firm further forward in supply chain.
Backward vertical integration
Involves a merger or takeover with firm backwards in supply chain.
Vertical integration Advantages
Reduce cost of production
Make firm more competitive.
Access to raw materials more certain.
Vertical integration Disadvantages
Diseconomies of scale
Culture clash between two firms
Little expertise in running new firm
Horizontal integration Advantages
Rapid increase of market share
Economies of scale
Gain new knowledge or expertise
Horizontal integration Disadvantages
Diseconomies of scale
culture clash between firms that have joined
Financial risks
Overpayment
Integration challenges
Culture differences
Financial rewards
Increased market share
Access to new markets
Increased value
Problems with rapid growth
Strain on cash flow
Customer service issues
Quality control issues
