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Businesses expand their operations due to an increase in sales attributed to efficient production, marketing and advertising strategies. Most businesses fail to achieve their targets due to management problems. In addition, some of them are forced to terminate their operations due to inflation, terrorism, competition and nature of their contracts (Bainbridge 34). However, some companies insist on continuing with their operations through merging or acquiring assets of other companies. This essay explains the consequences and circumstances surrounding mergers and acquisitions using the Mexichem and Dutch Peer case study.
Mergers refer to situations where businesses decide to combine their investments and reduce operational costs. This application is common in companies which produce similar or related goods and services (Miller 23). For instance, when a shoe polish manufacturer combines and integrates its operations with a shoe manufacturing company this is called merging. On the other hand, acquisition refers to situations where a company decides to take over the operations of another company (Miller 24). For instance, when a car manufacturing company decides to sell its investments and production rights to a fuel exporting company this is called acquisition.
Similarities and Differences
A common similarity between merging and acquisition is that in both cases the participating companies combine their business operations and conduct their activities as one company (Bainbridge 36). Mexichem is a famous Mexican company that specializes in manufacturing plastic pipes and distributing them in and out of Mexico. Most consumers will not identify the presence of differences in the operations of these two companies since they perform their duties as one company. There are few adjustments in their management structure and communication channels to reflect the needs of both companies (Miller 29). In this case, both companies retain their identities and brand names while continuing to offer their goods or services to the public.
The only significant difference between acquisitions and mergers is that in the former arrangement businesses must agree that one of them will sell its assets and stock to the other operator. This means all debts and credits are transferred through signing sale agreements that show a company has been sold to another.
Significance of Mergers and Acquisitions
Merging allows companies to take advantage of economies of scale through reduced prices of purchases. At the moment, Mexichem enjoys economies of scale since it has a huge operating capital that allows it to buy goods in bulk. This capital gives it negotiating powers when placing orders for stationery or other equipment (Bainbridge 38). This reduces purchases and allows the company to have additional funds for other activities.
In addition, loss of jobs is inevitable when companies merge due to a combination of factors. In this case, Mexichem was the acquiring company and this means Dutch Peer had to sack its workers after compensating them. There is no way one company can be managed by two chief executive officers. Therefore, the company being acquired must lay off its workers.
Moreover, Mexichem acquired new technology that has helped it to strengthen its competitive edge and lead its competitors in technology applications and developments. There is no doubt that acquiring Dutch Peer was a beneficial undertaking that has not only increased profits but also maximized on Mexichem’s potentials.
Lastly, this company has improved and widened its visibility and publicity to existing and potential clients and has marketed its products to various destinations. Consequently, there has been a boost in revenue generation from the previous $145 to the present $180 million dollars. This proves the power of acquiring and merging with other companies to multiply production and boost sales. It is now easy for Mexichem to raise additional capital from financial institutions like banks since it has a well established capital base.
Mergers and acquisitions enable companies to combine their financial and human resources to develop their production and take advantage of prevailing conditions. Even though these activities have negative impacts like loss of jobs and business identities their advantages are more than these shortcomings.
Bainbridge, Stephen. Mergers and Acquisitions: Concepts and Insights. Minnesota: Foundation Press, 2012. Print.
Miller, Edwin. Mergers and Acquisitions: A Step-by-Step Legal and Practical Guide. New York: Wiley, 2009. Print.
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