A merge or acquisition in the financial sector can be defined as the combination of two or more institutions into one new institution or institution. The main difference between a merger and an acquisition is the way in which the two companies are merged. In both cases the mergers and acquisitions mean a change in management where this is one of the main reasons why they take place. There are many reasons why one institution chooses to merge or acquire another. The underlying ratio is determined by a number of considerations and incentives to reduce costs and increase revenue.
Some of the motivations are the strategic reasoning for achieving a set of strategic goals, where after all it can be aggressive to increase the size of the institution, the opening to a new market, product differentiation. Also fundamentally defensive where the merger and acquisition with another company in order to maintain its competitive position in the market. A M&A can arise through speculative logic where the buyer sees the acquired company as a commodity. The acquired company can be a player in a new and growing sector, where the acquiring company wants to participate in the potential profitability of this sector without committing to a significant strategic expansion.
On the grounds of management failure, M&A may sometimes be necessary in an institution due to mishandling, and the rationale of financial necessity pushes the institution into a mandatory merger or acquisition by a more successful institution or even a smaller one. most successful.
In addition to the major mergers and acquisitions mentioned above, there are a number of incentives that drive a merger. The most important incentives are to reduce costs and increase revenue. Typical reasons for M&A to reduce costs are the acquisition of a specific skill owned by another company, access to national and global capital markets and the entry of financial firms into new geographical areas or product markets, globalization (firm establishment), reductions in tax liabilities through entry into markets of milder regulators, through economies of scale and range by offering more products and complementary products respectively. In order to increase revenue through product diversification with greater market share, larger size allows for better customer service, increased monopoly power and competition with other institutions with the ability to increase prices as well as size allows greater tolerance. in portfolio risks and risk decisions.
Merger and acquisition decisions and incentives without maximizing the value of the foundation can be implemented for managerial purposes such as personal goals as well as in activities to maximize the benefit to executives to the detriment of shareholders.
It is not uncommon for state intervention to force an acquisition when a weakness in a financial institution is identified through control mechanisms. It will force its acquisition as it is one of the most effective methods for resolving troubled banks, with liabilities and assets being absorbed by another sound institution. In the case of state mergers. when for reasons of society as a whole it forces to merge institutions (eg to avoid bank bankruptcy) for the resolution of the crisis.
If a merger goes well, the value of the new institution should be assessed positively as investors expect synergies to be achieved (ie combining the value and performance of the two institutions), creating cost savings or even increasing revenue for the new institution. . However, in the event that executives face obstacles, the post-completion agreement will lead to a host of problems, characterizing it as a disastrous merger or acquisition.
