CHAPTER 1

INTRODUCTION

An acquisition refers to the process involved in acquiring a company so as to make it better by

building on its strengths and weaknesses. The main aim is always to hasten the growth and
performance of a business than would be the case in normal cases of business growth. The
process starts with the identification of a business with value which can result in good value for
the acquiring company (Gaughan 2010). The businesses that are acquired are normally the
businesses that are within the same market segment or businesses that exist in complimentary
market segments. The process of acquisition results in one company taking over the controlling
interest of another company. A classic example of acquisition entailed the takeover of Chrysler
by Daimler Benz which at the time was widely referred to as the merger of two corporations
(Cartwright and Cooper 2012).

Acquisitions can be achieved through an agreement by the people holding majority interests in
the management of the company such as members of the board or the majority shareholders who
hold majority of voting power. It can also be achieved through the purchase of shares in an open
market. An acquisition can also be achieved through a takeover offer which can be made to the
majority of shareholders. It could also be achieved through the purchase of new shares by a
private treaty. Acquisitions can sometimes be unfriendly especially when one company tries to
take over the other by adopting hostile measures (DePamphilis, 2009).

In the last 3 decades, mergers and acquisitions have become a very common phenomenon. The
value attached to mergers and acquisitions increased from $464 billion in 1990 to $3.4 trillion in
1999-2000. However there was a sharp decline between 2001 and 2002. From 2003 onwards
there was a remarkably improvement in mergers and acquisitions (Alexandridis, Petmezas and
Travlos, 2010). Acquisitions happen for a number of reasons. One of the reasons is always to
increase the growth of the corporate business. Acquisition is done to increase the capability of a
business. Increased capability may stem from the ability to conducts a more extended research
and development activities of from the ability to adopt stronger manufacturing operations. A
company may also acquire another to reduce the costs incurred in manufacturing operations. The
acquisition of one company results in the increase in the economies of scale which results into a
reduced cost of operations for the resulting company. A business may also enhance its capability
through the acquisition of robust technology as opposed to having to build the technology from
scratch (Alexandridis, Petmezas and Travlos, 2010). This makes it easier for the company that
acquires the other to quickly have access to patents and copyrights of the acquired company
which reduces the tough legal process. Acquisition and mergers are more common in
Biopharmaceutical companies due to the heavy investment required in research and development
in the industry (LaMattina, 2011).

Acquisitions can also be done to gain a larger competitive advantage or gain a large share of the
market. A company may decide to acquire another company in order to increase its distribution
network or expand its marketing channels. The increased distribution network may expand the
customer base of the company very fast. Besides that a company may acquire another so as to
easily expand into another market where another company is already operating as opposed to
starting afresh. This may force it to acquire another company which is already well established
(Mller-Stewens, Kunisch and Binder, 2010).

Acquisitions may also be done with the sole purpose of complementing the products or services
provided by a company. One company may acquire another so as to combine the products
produced by the two companies and gain a competitive edge in the market. A classic example of
this was the purchase of EDS by HP in 2008 in order to strengthen the services side of the
technology offering of HP. However, such the ability to combine products and services by two
companies is highly regulated to ensure that the two companies do not come together with the
sole purpose of creating a monopoly (Mller-Stewens, Kunisch and Binder, 2010).

Acquisition may also be done to replace leadership. This may especially be the case in situations
where the present owners cannot identify their successor. The business owners may also have
the intention of selling out their business so as to invest in something else. Acquisition can also
be done to reduce costs. One company can acquire another company that produces similar
products and services to reduce the costs of operations. The company can then combine
locations or reduce costs by streamlining the support functions needed at the company. The
overall result is the increased economies of scale which significantly lowers the cost of production
(Haleblian, Devers, McNamara, Carpenter and Davison, 2009).

Companies may also opt for acquisition to ensure that they survive. This was evident during the
global financial crisis during which most companies made use of their identities to survive from
2008 to 2012. If the reorganization of business is not properly handled during mergers and
acquisitions the effect on the morale of employees can be devastating. Acquisitions bring together
two sets of employees who are drawn from different organisations with different cultures and
different styles of operation. The ability to learn new organisational culture can be devastating to
the employees especially when there are a lot of uncertainties concerning job security (DeYoung,
Evanoff, and Molyneux, 2009).

Employees find it very difficult to change especially in cases where they were involved in the
process of decision making. Employees may fear losing the opportunities which they enjoyed
prior to the merger. This is especially the case in leadership positions. Both sets of employees
cannot retain their positions and the employees in the acquiring organisation always end up
having the upper hand. This could cause a lot of conflict. Acquisitions may also reduce the
competitiveness of employees especially when they are more concerned about their jobs. This
could spark conflict in the organisation. Competition that creates tension and negative conflict
cannot be good in an organisation (Haleblian, Devers, McNamara, Carpenter and Davison, 2009).

CHAPTER 2

LITERATURE REVIEW
2.1 Introduction
References

Alexandridis, G., Petmezas, D. and Travlos, N.G., 2010. Gains from mergers and acquisitions
around the world: New evidence. Financial Management, 39(4), pp.1671-1695.

LaMattina, J.L., 2011. The impact of mergers on pharmaceutical R&D. Nature reviews. Drug
discovery, 10(8), p.559.

DeYoung, R., Evanoff, D.D. and Molyneux, P., 2009. Mergers and acquisitions of financial
institutions: a review of the post-2000 literature. Journal of Financial services research, 36(2-3),
pp.87-110.

Mller-Stewens, G., Kunisch, S. and Binder, A. eds., 2010. Mergers & Acquisitions. Schffer-
Poeschel Verlag.

Haleblian, J., Devers, C.E., McNamara, G., Carpenter, M.A. and Davison, R.B., 2009. Taking
stock of what we know about mergers and acquisitions: A review and research agenda. Journal
of Management, 35(3), pp.469-502.

Gaughan, P.A., 2010. Mergers, acquisitions, and corporate restructurings. John Wiley & Sons.

Cartwright, S. and Cooper, C.L., 2012. Managing mergers acquisitions and strategic alliances.
Routledge.

DePamphilis, D., 2009. Mergers, acquisitions, and other restructuring activities: An integrated
approach to process, tools, cases, and solutions. Academic Press.