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Mergers & Acquisitions

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Introduction

Mergers & Acquisitions How will goodwill impact the balance sheet of the combined entity after the merger and acquisition is completed? Answer: If the cost of purchase is higher than the value of the entity which is purchase by the entity, the value of the goodwill will be increased. Hence, in the combined balance sheet the goodwill will be shown as an increased value which will be extra of the payment that the acquisition company has paid to the acquired company. The value of the goodwill will be as on the date of acquisition. The goodwill will increase the intangible asset of the combined entity. How do increase revaluations of fixed assets and other intangibles assets (patents and trademarks impact combine d balance sheet? Answer: As the fixed assets and other intangibles asset are revaluing - those will increase the value of the assets of the acquiring company. The purchase value of the acquiring entity will be determined accordingly. So the assets will be revalue and thus in the combined balance sheet will be shown at revalue price. ...read more.

Middle

A merger may allow savings in costs of common activities by avoiding duplication. For example, suppose A Corp and B Corp have 5 wagons each to carry their output to warehouse. Activities of both are seasonal. If season for A is summer and that for B is winter, a merged company can do the same work by 5 wagons instead of 10. Specialization implies that every person or region specialises in the production of one particular commodity or service or some small process of production. An existing business may take over another business in entirely different line of trade. The principal incentive for such amalgamations, called conglomerate mergers is diversification. In the context of merger, it is the process of combining activities in such a way that worst of one matches with best of the other. The outcome of the combined activity is less susceptible to random fluctuations because both the entities are specialized in different areas. Suppose A Corp carries on production in India but earns most of its revenue from exports to USA. ...read more.

Conclusion

4. Economic and Market Conditions - The 1990s merger wave was also accompanied by economic recovery after the Gulf war, low interest rate levels and a recovery of the junk bond market. Share repurchases contributed to favourable cost structures. Haunschild (1993) observed that for the 1980s wave, board interlocks allowed knowledge about M&As to disseminate, diffusing the practice among firms. 5. Tax Code Changes - The 1980s saw two major revisions in the tax code, the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. Both contain provisions important to mergers. The 1981 act lowers the capital gains rate and accelerate the depreciation of stepped-up assets. The 1986 act eliminated many of the tax inducements to mergers by equalizing capital gains and personal income tax rates and restricting the advantages of step-ups and tax loss carryovers. 6. Easing of Antitrust Enforcement - The 1982 guidelines clearly raised the market share cut-offs. For example, in highly concentrated markets, those with a CR4 of 75 percent or an H-index of 1800, the 1968 guidelines indicated government opposition to mergers between firms in which both the acquired and acquiring had more than 4 percent of the market. The 1982 guidelines raised this level to 5 percent. ...read more.

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