The Effects of Merger and Acquisition - Essay Sample

Introduction

The primary purpose of a business organization is to grow and expand to become a stable and profitable business entity. The business organization that experience management issues and slow pace of growth and expansion can merge with a similar business entity to achieve its corporate goals. A corporate merger has some possible effect on the companies that undergo the process of amalgamation or acquisition (Pawaskar, 2001). The result may be on their prospect growth and long term outlook although there are some adverse effects that the company may also experience after the merger. Merger and acquisition increase the financial stability of the business organization by consolidating the financial muscles of the two companies. This, therefore, helps the company meet its financial obligation when they become due. As a result of the merger, the company grows more significant in size thus making them leapfrog their competitors who have been a threat to the company performance. Through consolidation, the company reduces the number of its competitors by forming one business entity together. This, therefore, ensures that the company pre-empts competition which is the primary purpose of the merger in the industry.

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The merger allows the company to snap up the business organization that has an attractive portfolio of assets before the competitors become stable in the market. Business amalgamation and acquisition also help in the creation of business synergies and economies of scale. Merger helps the business organization in taking advantage of synergies and economies of scale. The company builds synergies when a business organization with similar features comes together; consolidate resources and offices thus increasing its earnings per share. Through the merger, the company is capable of achieving dominance in the industry (Poornima and Subhashini, 2013). The amalgamated company has a stronger dominance over others thus likely to create a monopoly. Amalgamation also reduces the tax burden of the company and this help the company increases its profitability and earnings. Every business entity is required by the law to submit tax to the government, payment of a tax of a single business is higher as compared to an amalgamated company. These, therefore, reduces work morale of workers and line managers especially when they are not involved in the decision-making process.

Merger and acquisition increase the stress of workers. This is because merger is one for of change which is not easy for workers. Stress is high to workers when the executives did not involve them when making decision about merger. The workers develop a feeling that they are not taken as an important asset of the organization thus lose work morale which has an effect on the organization performance. During merger it is very difficult to accept and this cause stress which has a negative effect on the performance. Cultural clash available during merger can lead to los of job of some workers. Because of these workers of the two organizations differ in opinion and ideologies thus increasing conflict in the organization. This may result into loss of job which most workers fear most in their life. The effect of this can be felt in the organization performance because workers who have developed rapport with customers are not there. It is therefore necessary for the executive to look into this and ensure that they offer incentives that retain workers during amalgamation to retain important talent. Finally merger and acquisition increase competitiveness in the workplace. The workers who are concerned about their job security will provide the best service in order to retain their jobs. It is important for managers to know this because some workers will perform better during merger in order to retain their job only.

References

Pawaskar, V (2001) Effect of mergers on corporate performance Vikalpa: The Journal for Decision Makers, 26 (1) (2001), pp. 19-32

Poornima and Subhashini, (2013) Impact of mergers and acquisitions across industries in India International Journal of Management Research and Development, 3(2) (2013), pp. 113-125