The main dangers of using mergers or acquisitions as a form of market Essay

The main dangers of using mergers or acquisitions as a form of market entry - Essay Example Mergers or acquisitions may be defined as an aspect of corporate finance or strategy and management that involves buying, selling and combination of various companies.The objective of combining is to finance or assist a company that is growing to grow fast without forming another business entity. The two terms have a slight difference, on one hand, acquisition may refer to a company taking over another and establishing itself as a new owner. On the other hand, merger occurs when two companies agree to operate as one new company. As suggested by Turner and Johnson (2010), in both cases, that is merger and acquisition the outcome is that one company swallows another and operates as one. For instance in 1999, Glaxo Wellcome merged with SmithKline Beecham creating GlaxoSmithKline as a new company. Practically, equal mergers do not often happen, in most cases a company purchases another and allows it claim that it was equal merger, despite the fact of it being technically acquisition. How ever merges or acquisitions are said to have several risks when used as the entry to the market. Mergers and acquisitions have the tendency of destroying continuity of leadership in the particular company’s management. This might happen for even over a decade since the starting of the deal. Studies have shown that the targeted companies may lose about twenty percent of their executives prior the acquisition. Mergers and acquisitions in most cases create problems in the brand. ... The issue different consumer preferences may also be endangered by M&A. This occurs when upcoming company chooses to change the products. Changes may also occur in terms of price of product. One of the motives of M&A is to make the prices higher hence maximizing profits. The risk involved is that the consumer may change their attitude and fall to consume the products. This in turn endangers the growth of the company. The resulting company is faced with the risk of operation after the transaction as suggested by Segal-Horn and Faulkner (2010). For instance the personnel management may become slow because it is either new employees are incorporated or the existing ones become overloaded. The personnel department usually takes long to adapt to the changes thus proofing a slow growth in the progress of the new business. The effect on personnel therefore makes market entry not to be effective. The management of information and risks is also dangerous factor in M&A. The previous ways of tr ansferring information may seem difficulty as a result of new workers or overload. The resulting company may become exposed to many risks due to the merger whilst the method of managing them may take long to devise. The cost of risk management may also be high at the time of market entry. This is dangerous because at this time the company is still trying to cope with the current situation. According to Deresky (2003), cultural differences and barriers proof to be dangerous to M&A in market entry. For instance, the lack of knowledge about the resulting market may be a danger to the resulting company or firm. The market may respond negatively to the merger thus result to poor sales. This will cost a lot to the new company as one of the merger