Reasons Behind Mergers

Mergers, acquisitions and takeovers have always kept the interest of economists alive. Mergers may prove to be beneficial depending on the strategies adopted, but it would not be right to say that all mergers have been successful.

There are many reasons behind mergers and takeovers. For instance, a particular company is very good at administration while some other company is good at marketing strategies or in operations. If the expertise of both are amalgamated, it produces synergy. A new company is formed in the process, which has a potential much higher and superior to what the individual companies previously had.
By applying the rules of synergy effectively, a merger can be made a success. Several other reasons for mergers are as follows:
Enhancing company productivity. There is also a general tendency that the merged companies would monopolize the market, thereby ousting others.
Political factors.
Cutting down expenses and increasing revenues.
When a company is not self sufficient to operate on its own. Hindrances may be in the form of insufficient investment capacity, excessive competition due to which the company is not able to keep pace with other companies. Under such circumstances, the subsidiaries may merge with the parent company for better output.

Mergers may be of the following types:

(a) Vertical merger
(b) Horizontal merger
(c) Market extension merger
(d) Conglomeration
(e) Product extension merger
(f) Reverse merger
(g) Triangular or subsidiary merger
(h) Forward triangular or subsidiary merger
(i) Reverse triangular or subsidiary merger

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