MERGERS&ACQUISITIONIMPACT ON FINANCE

BY KISHORE NBADRUKA COLLEGE

Presently business are combine to improve competitiveness of companies and gaining comparative advantage over other firms through gaining greater market share, broadening the portfolio to reduce business risk, entering new markets/geographies and capitalizing on economies of scale merger and acquisition is to bring the two organizations together with different cultural values, personality and cultures.

A merger is an integration of two or more firms into one and firm agrees to share the control of joint business with other owner. The phrase merger or acquisitions are mostly used interchangeable an acquisition is a single or multiple transactions whereby a company purchase the assets or shares of another company with the intention of obtaining its control.

An acquisition is defined as a process in which a company or an individual acquire the assets of another company, either directly by taking the ownership or indirectly just by taking the control on the company’s management.

Difference between M&A

By purchasing of assets

By purchase of common shares

By exchanging of shares for assets

By exchanging of shares for shares

 Flipkart- Myntra

 Asian Paints- Ess Ess Bathroom Products

Ranbaxy- Sun Pharmaceuticals

TCS- CMC

Tata Power- PT Arutmin Indonesia

In Mergers and Acquisitions, financial performance of firms is determined by evaluating the following

Profitability

Liquidity and

solvency

Profitability shows the extent to which a company has being efficient in its operations or gauges a company’s operating success over a given period of time

Liquidity measures the ability of a firm to meet its short-term obligations in due course. Liquidity measures the ability of a company to pay its short-term debt and meet unexpected cash needs.

Solvency is best conducted via Total Debt ratio (TDR) and Total Assets ratio (TAR).

Which will depends on the company’sFinancial position.

Improves liquidity and have direct access to cash resource

Disposes of surplus and outdated assets for cash out of combined enterprise

Enhance gaining capacity, borrow on better strength and greater assets backing

Avail tax benefits

Improves EPS (Earning per share)