Mergers

Question 1

Define Takeover.

Answer 1

A takeover is when a business acquires control over another business.

Question 2

State 3 reasons as to why businesses would takeover.

Answer 2

1) Increase market share.
2) Acquire new skills.
3) Access economies of scale.

Question 3

Why would a business prefer a takeover?

Answer 3

1) Existing products are in the later stages of product life cycle.
2) businesses lack knowledge or records to develop organically.
3) speed of growth is a high priority.
4) competitors enjoy significant advantages that are hard to overcome.

Question 4

What are some drawbacks of a takeover?

Answer 4

1) high cost involved
2) problem valuation
3) questionable motives
4) high failure rate

Question 5

Why may a takeover fail?

Answer 5

1) it was mishandled.
2) poor communication.
3) competitors take the opportunity to gain market share whilst the take over target is being integrated.
4) lack of decisive change management in the early stages.

Question 6

Forward & vertical integration

Answer 6

Acquiring a business further up in the supply chain

Question 7

Backward & vertical integration

Answer 7

Acquiring a business earlier in the supply chain.

Question 8

Horizontal integration

Answer 8

Acquiring a business at the same stage of the supply chain.

Question 9

Conglomerate integration

Answer 9

When the acquisition has no clear connection to the business buying it.

Question 10

What are some benefits of horizontal integration?

Answer 10

1) achieve economies of scale
2) potential to secure revenue synergies.
3) wider range of products.
4) reduces competition by removing key rivals.

Question 11

What are some benefits of vertical integration?

Answer 11

1) enables a business to capture the greater share of the profit on each scale.
2) secures important sources of supply or distribution.
3) creates a barrier to entry to potential competitors.
4) gain greater insights into customer needs and wants at each stage of supply chain.

Question 12

Define Merger

Answer 12

A merger is a combination of two previously separate business achieved by forming a new firm into which the two original businesses are integrated.

Question 13

What is the difference between a merger and a takeover?

Answer 13

A merger is a new firm whereas a takeover is an existing firm acquiring more than 50% of another firm.