Name : Muhammad Nabiel Dasaad

SN : C1I018022

Question:

1. Why are merger and acquisition strategies popular in many firms competing in global
economy?
2. What reasons account for firm's decisions to use acquisition strategies as a means to
achieving strategic competitiveness?
3. What are the seven primary problems that affect a firm's efforts to successfully use an
acquisition strategy?

Answer :

1. The reasons why mergers and acquisitions are popular in the firms competing in
global market are as follows:

-It increases market power.

-It over comes entry barriers.
-Cost of new product development and its launch gets reduced.
-Risk in comparison to new product reduces.
-Higher level of diversification.
-It gives a new shape to a firm's competitive scope.
-Helps the firm to develop new capabilities.

2. When an acquisition is made, the company would have an increased market share and
possibly profitability by merging resources. This is done to help prevail any market
entry barriers it had before. Customer loyalties and economies can be overcome. It
creates more value for the stakeholders. As well as earning above average returns
from the acquisition, especially when it could not do so on its own.

3. 1. Difficulties in integrating the two firms after the acquisition is completed

2. Paying too much for the target (acquired) firm or inappropriately or inadequately
evaluating the target
3. The cost of financing the acquisition, related to large or extraordinary debt
4. Overestimating the potential for gains from capabilities and/or synergy
– Synergy: Value created by units exceeds value of units working
independently
– Private synergy: Occurs when the combination and integration of acquiring
and acquired firms' assets yields capabilities and core competencies that could
not be developed by combining and integrating the assets with any other
company
5. Too much diversification
– Diversified firms must process more information of greater diversity and thus
acquisitions become a substitute for innovation.
6. Management being preoccupied or overly focused on acquisitions
– Necessary activities with an acquisition strategy
– Managing the integration process after the acquisition
7. The combined firm becoming too large
– Bureaucratic controls
– Additional costs may exceed the benefits of the economies of scale and
additional market power
– Larger size may lead to more bureaucratic controls