Mergers and acquisitions are driven by the corporate leadership's desire
to increase their corporate entity's financial performance. Motivating
principles may include the following:
1. Achieving economies of scale. The expectation that the merged or
amalgamated company shall reduce its fixed costs by removing duplicate
departments, operations and/or personnel, so as to lower the costs of
the new company relative to the same revenue stream, thereby increasing
2. Achieving economies of scope. Attempting to facilitate demand-side
changes, wherein increasing or decreasing the scope of marketing and
distribution of different types of products through the combined
entities would improve overall financial performance.
3. Increasing revenue or market share. The intention is that the
acquiring company will be absorbing a major competitor and thereby
increase its market power [by capturing increased market share] to set
prices and thereby improve its financial performance.
4. Cross-selling. By accessing the customer base of the acquired or
merged corporation, the other corporation is capable of directly
accessing that customer base which is already being serviced and/or
supplied by the other corporation, thereby increasing the potential by
which those customers will accept those services and/or supplies.
5. Synergy. Collaboration between the correct individuals and
departments can produce results that are greater than the sum of their
parts alone. It is the aspiration of leadership that such collaborative
integration shall result in heightened synergies.
6. Taxation. Possible attainment of tax losses existing within the
target corporation, that would enable the acquiring corporation to
offset its own tax liability against those accrued tax losses. Tax laws,
however, may preclude the realization of any or all of such tax losses
by the acquiring corporation, based upon the particulars of the
transaction and the underlying motivations, among other factors.
7. Geographic diversification. By expanding the scope of the product or
service offering through an established channel, which previously had
not been successfully or sufficiently engaged, so as to more effectively
bring that one corporation's products and/or services to that untapped
(or previously inaccessible) geographic region.
8. Resource transfer. By overcoming an uneven distribution of resources
between locations, such that the integration of the target corporation's
resources with the acquiring corporation's resources can create
synergies through their integration and exchange of pertinent corporate
9. Employees. Adding needed engineering, sales or other talent quickly.
10. Technology. Adding and integrating key technical capabilities and/or
acquiring a disruptive technology.
11. Vertical integration. Represents the merging of [or alternatively,
the acquiring of] upstream and downstream corporate entities.
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