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Critically evaluate why so many mergers and acquisitions continue to be made when so many fail.

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Name - Joseph Robinson Student Number - 0209045 Module - Strategic Management Code - BS3543 Year - 3rd Critically evaluate why so many mergers and acquisitions continue to be made when so many fail. The phenomenon of mergers and acquisitions (M&A's) triggers an array of opinions and viewpoints. Often it is a strategy that is seen as a perfect way of achieving growth. It is by no means an organic or natural route to success, but has tended to be a quick and easy way of increasing an organisations size and power. However although there has been 'waves' of popularity and success since its introduction in the 1960's it has also suffered criticism due to the amount of failures it has accounted for. Despite the strong suggestion that this strategy has been the architect for many an organisations downfall there still remains a propensity in the current business environment for managers to adopt it. Throughout this essay I am going to examine some of the areas that explain M&A's volatility and attempt to discover why managers are persevering with the strategy when it is seemingly flawed. Over the last few decades it has become increasing apparent that the effect of mergers and acquisitions is not as beneficial as once thought. When the growth strategy was pioneered in the middle part of the nineteen hundreds it was looked upon as a way of creating an empire across different sectors and countries. ...read more.


Although there are many risks and pitfalls involved when the strategy is undertaken management clearly believe the prospective benefits outweigh these possible drawbacks. In modern business globalisation has in many cases become a necessity rather than a luxury. Firms are now desperate to expand into foreign countries in order for them to compete in uninhabited lucrative markets and increase their competitive advantage. If global markets are entered successfully it gives organisations the chance to exploit resources, synergies and opportunities. However there is also a sense that in the global marketplace 'bigger is better' (Doitte and Smith 1998) and firms have to be of a certain size to be able to compete. In order to break into global markets organisations need to grow and often quickly so ground is not lost on competitors. In this situation M&A's are the most attractive option for managers. They represent a 'leap' approach whereby firms can experience this desired growth rapidly. Managers are aware that it is the growth strategy that carries the highest risk, but often feel they have little choice. The modern business world demands innovation and expansion and if companies stand still they will simply get left behind. Firms often use M&A's as a way of diversifying. A well-executed diversification strategy can widen an organisations product portfolio and therefore spread an organisations risk. This means entering different markets in order to reduce dependence upon current products and customers. Selling a range of different products to various groups of consumers will mean that if any one product fails, sales of the other products should keep the business healthy. ...read more.


Along with the other negative managerial motives they represent a clear reason why M&A's continue to be used in the light of so many failures. In conclusion I feel the topic of M&A's and the reasons behind their sustained use in business is now much clearer. It is initially very difficult to fathom any organisation adopting a strategy that only has a success rate of around 50%. Dominant factors such culture and management inexperience seem to make any merger or acquisition an uphill struggle. However when the topic is examined closer the reasons behind these decisions are more obvious. In the modern business environment businesses are constantly looking to better themselves and stay one-step ahead of competition. It is wrong to claim that as a result organisations are forced into strategies that stimulate rapid growth, but there is a definite feeling that factors such as globalisation and increased market power are the best route to success. As these are two hallmarks of the M&A phenomenon it is no real surprise that management frequently decide that it might be their best strategy regardless of their poor success rate. It is this risk taking mentality, that has become a characteristic of 21st century management, allied with the more cynical decision making habits some managers have adopted has kept the use of M&A's high. Added to the fact that in the right context M&A's can be an efficient and highly profitable growth strategy it is easy to see how they have had and will continue to have a great use in business regardless of their failures. ...read more.

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