Advantages & Disadvantages of Mergers & Acquisitions

This chapter focuses on pros and cons of M&A, a common 5/10‑mark question.

1. Advantages (Merits) of M&A

(a) For Companies

1. Economies of Scale

   • Larger operations reduce average cost in production, purchasing, marketing and finance.

2. Synergy and Strengthening

   • Combined firm may enjoy better technology, wider distribution network and stronger brand.

3. Faster Growth

   • Acquiring existing firm may be faster than organic expansion into new products or markets.

4. Risk Diversification

   • Conglomerate mergers can spread risk across different businesses.

(b) For Consumers

1. Improved Product Quality and Variety

   • Merged firms may offer better quality and more choices using combined R&D and resources.

2. Better Service

   • Larger firms can invest more in after‑sales service, warranty and customer care.

(c) For Economy

1. Stronger Firms

   • Healthy consolidation can create globally competitive companies.

2. Efficient Use of Resources

   • Weak or sick units may be revived by stronger partners, reducing wastage.

2. Disadvantages (Demerits) of M&A

(a) For Companies

1. Integration Problems

   • Difficulties in merging cultures, systems and management styles.

2. Overestimation of Synergy

   • Many deals fail to deliver expected benefits; acquisition may become costly mistake.

(b) For Employees

1. Job Losses and Uncertainty

   • Rationalisation and downsizing may lead to retrenchment or redeployment.

2. Stress and Morale Issues

   • Uncertainty about roles and future affects productivity.

(c) For Consumers and Economy

1. Reduced Competition and Monopoly Power

   • Large merged firms may increase prices or reduce choices if not regulated.

2. Concentration of Economic Power

   • Few big groups may dominate entire sectors.

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3. Role of Regulation (Competition Law)

• To ensure that M&A do not lead to abuse of dominant position.
• In India, Competition Commission of India (CCI) examines large combinations.

4. Quick Revision Points

• Advantages: scale, synergy, faster growth, diversification, efficiency.
• Disadvantages: integration problems, job losses, monopoly risk, concentration of power.
• Balanced conclusion: M&A useful if well‑planned and properly regulated.

5. Quiz Time 🎯

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