3.2.2 Mergers and takeovers Flashcards
1
Q
What is the distinction between a merger and a takeover.
A
- Merger : where a firm merges with another firm
- Takeover : Where firm acquires another firm via purchase of shares
2
Q
What are some reasons for mergers and takeovers
A
- Higher market power : Gain larger market share to influence prices
- Access to new markets : Diversification can also lead to lower risk as the risk is spread
- Synergies : cOMBINING operations to become more efficient or reduce costs
3
Q
What is horizontal integration
A
- When a company merges or takeover another firm in the same market
4
Q
What are the advantages to horizontal integration
A
- Increases market share and reduces competition
- Economics of scale in production or distribution
5
Q
What are the disadvantages for horizontal integration
A
- Regulatory scrutinise to prevent monopolies
- Can lead to a lack of diversification if the market declines
6
Q
What is vertical integration
A
- When a firm acquires another downm or up the supply chain
7
Q
What are advantages of vertical intergration
A
- Secures supply chain security and reduces costs
- Allows for better quality control as the firm owns more of the supply chain
8
Q
What are some disadvantages of vertical intergration
A
- High initial costs for intergration
- May cause inefficiencies in firm if the firm acquired under performs
9
Q
What are the financial rewards of M&A
A
- Increased revenue due to combined sales
- Economies of scale
10
Q
What are the financial risks of M&A
A
- High costs due to intergration, may lead to financial strain due to high debt
- Integration issues : Misalignment in management styles may lead to higher turnover and increased recruitment costs over time
11
Q
What are the problems associated with rapid growth
A
- overtrading : Rapid expansion leads to increase in demand for working capital, leads to cash flow iossues
- quality control issues
- Diseconomies of scale due to communication issues
12
Q
A
