Rationale for Mergers
Many of the motives behind mergers of firms are discussed hereunder:
Growth is the most general and important motive for mergers. Merging firm provides an immediate growth opportunity to a firm which was earlier operating within a single country. There are various factors which encourage a firm to merge internationally for growth. They are:
Technology affects mergers in two ways:
Technological superiority can be exploited very easily without a lot of cultural interference unlike specific management functions like marketing, labor relations etc., which are environment-specific, and are not readily transferable to other surroundings. The acquirer may intentionally select a technologically inferior target, which because of its inferiority is losing market share and market value. By bringing in technology into the acquired firm, the acquirer can improve its competitive position and profitability both at home and abroad. On the other hand, the acquirer firms with surplus cash, but technologically inferior can obtain the necessary technology by acquiring a firm with superior technology to remain effective as competitors on the worldwide scene.