6. MERGERS, ACQUISITIONS, BUSINESS VALUATIONS AND RECONSTRUCTION

Question 1

What is an acquisition?

Answer 1

An acquisition is when two or more businesses combine their operations.

Question 2

What are some other names for an acquisition?

Answer 2

Amalgamation, merger or takeover.

Question 3

Define the term business reconstruction.

Answer 3

Business reconstruction is the restructuring of a business’ assets and liabilities in order to improve profitability and shareholders wealth.

Question 4

What are the three types of mergers?

Answer 4

1. Vertical mergers
2. Horizontal mergers
3. Conglomerate mergers

Question 5

Explain what a vertical merger is.

Answer 5

Vertical mergers is where there’s a combination between businesses in the same industry but at different stages of production or distribution.

Question 6

Acquiring a business in an earlier stage is known as…………..

Answer 6

Backward integration

Question 7

Acquiring a business in a latter stage is known to be …………..

Answer 7

Forward integration

Question 8

What is a Horizontal merger?

Answer 8

A horizontal merger is a combination between business in the same industry and in the same stage of production or distribution.

Question 9

What is a conglomerate merger?

Answer 9

Conglomerate mergers involves the acquisition of firms in an entirely different industry to enable diversification.

Question 10

What are the economic reasons for mergers?

Answer 10

1. Economy of capital
2. Economy of production & distribution
3. Eliminating inefficiencies and enhancing competence.
4. They help in increasing market share