Question

The need to create value for stakeholders is a primary influence on firms' decisions to engage in M&A activity. But companies interested in implementing merger and acquisition strategies sometimes face hurdles in their attempts to do so, including trade barriers and local public interest concerns.

• Why don't corporations just develop internally the businesses/capabilities needed instead of obtaining them through an acquisition or merger?
• Why do target firms agree to be acquired?

Answer 1

Corporations do not just develop internally the businesses/capabilities needed instead of obtaining them through an acquisition or merger as it gives them advantage of acquiring assets in lesser time which may take time to build over a longer period in an industry or new market. It helps in expanding the market share and is cost efficient method to compete in an industry or market. The other reasons include decreasing the risk by joining the resources with other firms and financial benefits through taxes and other monetary alternatives. It provides a competitive advantage to the company with lesser investment and use of resources.

Target firms agree to be acquired for reasons like gaining advantage of economies of scale combining their resources with another firm, overcoming the resources shortage by merger or takeover by another firm. It helps in building capabilities in areas in which the target firm may lack. The target firms also agree to be acquired if they are exiting a particular business or market.