Motives for mergers and acquisitions depend on the market situation, as well as the strategy of the company and the resources it owns.
The following main M&A reasons are singled out:
The desire to reach synergies
- Financial savings due to transaction costs and the elimination of duplicate functions
- Combining of complementary resources
- Strengthening of market position (monopoly motive)
- Economies of scale
- Mutual complementation in the field of R&D (Research and development work)
Diversification of production
Protection against hostile takeover
Improvement of management effectiveness
The difference between the market price and the cost of its replacement (sometimes it is cheaper to buy a ready-made business than to build a similar business from scratch)
Personal motivation of management and owners of the company
It should also be noted that mergers and acquisitions have their own characteristics in different countries and regions of the world that is primarily dependent on the level of economic development of the country and its business culture.
The main motives for M&A transactions in Ukraine are the following:
Increase of the market share
Expansion into new geographic or product markets
Diversification (investments in unrelated sectors of the economy to reduce the risks)
Acquisition of technology or intellectual property
Improving financial performance
All of the above M&A motives have one common goal - to increase the profitability and value of the business. A key factor in achieving the goal of increasing the value of the company is to reach the expected synergies from the merger of the two companies.
There are following types of synergy:
Operating synergy is achieved by companies working in the same sector. The sources of operating synergy are economy of scale, the ability to raise the price as a result of the market-share gain and decrease of the competition, rapid growth in new or existing markets.
Functional synergy is provided by buying a company with a potentially profitable projects, but limited financial resources.
Financial synergy is manifested through the purchase of companies with high cost-effectiveness, uncommitted funds and a positive reputation. This allows the acquirer to increase the opportunities to raise borrowed funds and to increase cash flows.