Thursday, April 1, 2010

Advantages and disadvantages of acquisition

Advantages and disadvantages of acquisition
Advantage of acquisition are :
  • Speed :It provide ability to speedily acquire resources and competencies not held in house.It allows entry into new products and new markets.Risks and costs of new product development decrease.
  • Market power :It builds market presence.Market share increases.Competition decrease.Excessive competition can be avoided by shut down of capacity.Diversification is aggrieved.Synergistic benefits are gained.
  • Overcome entry barrier :It overcomes market entry barrier by acquiring an existing organization.The risk of competitive reaction decrease.
  • Financial gain :Organization with low share value or low price earning ratio can be acquired to take short term gains through assets stripping.
  • Resources and competencies :Acquisition of resources and competencies not available in house can be a motive for merger and acquisition.
  • Stakeholder expectations :Stakeholder may expect growth through acquisitions.
Disadvantage of acquisition are:
  • Integration problems:The activities of new and old organizations may be difficult to integrate.cultural fit can be problematic.Employees may resit it.
  • High cost :The acquirer may pay high cost,especially in cases of hostile take over bids.Value may not be added for the acquirer.
  • Financial consequences :The returns from acquisitions may not be attractive.Executed cost saving may not materialize.
  • Unrelated diversification:This may create problem of managing resources and competencies.
  • Too much focus:Too much managerial focus on acquisitions can be detrimental to internal development.

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