Home Search Sitemap Contact Bookmark

Free Dissertations - Finance Dissertations

Acquisitions That Were Motivated By The Parent Companies Desire For Immediate ...

Acquisitions that were motivated by the parent companies desire for immediate financial benefit were not found to be very successful. Even the most successful acquisitions took up to five years to meet management's expectations.
A true partnership mentality where both parties plan new products together led to the greatest benefits.
Management understand each other's technologies and businesses.

First point.
Logically attractive industries with high average rates if return tend to have high barriers to entry because of regulation, technological expertise and patents and high fixed costs. Acquiring firms must decide whether or not the potential target offers new opportunities for profit growth. Value can only be added if the cost of entry exceeds the expected returns.
Buyers can pay up an average of 36 percent over sellers' book values (Katz, Simanek & Townsend, 1997). Large financial premiums from purchasing companies can reduce potential profits just as much as high entry costs for start-up operations.


Cultural compatibility is especially important in cross-border M&A. National cultural dimensions if uncertainty avoidance and individualism imply that significant change in both firms may cause severe resistance to M&A in countries where people strongly avoid risk or set a high value on autonomy,
(Katz, Simanek & Townsend, 1997)
The potential for value creation is exceptionally high. At the same time, implementation of underlying strategies is exceptionally difficult and costly. How much of the value adding potential will be realized will differ from case to case. Company owners must become highly skilled at understanding the nature of the strategic relatedness between themselves and potential targets.
The dangers of creating larger companies is great inflexibility and bureaucracy. Also that high debt financing/ leverage finance means R&D spending is crowded out by interest payments.
The challenge is to find what the motive is for a bank acquisition and what makes a successful bank merger? How do we assess this given the complexity of most of these acquisitions?
What are the research issues? What is the significance and relevance of the research?
Worldwide the banking industry is currently experiencing an intensified phase of consolidation. The interesting trend is that the size of the banks getting involved is getting bigger and bigger. (Rhoades;1996) observes a substantially increased number of commercial banks M&As of more than $1bn in assets. During 1989 to 1994, 75 such M&As occurred , while only 67 large M&As were carried out during the whole of the 1980s. There were another 61 large M&As from 1995 to 1997.
Chemical Bank and Chase Manhattan in 1996 and between BankAmerica and NationsBank in 1998. In Europe the largest merger has been between UBS and Swiss Bank (Lindblom, Von Koch, 2002).


Thanks