Share deals vs asset deals

Steel , and General Electric that merged during the Great Merger Movement were able to keep their dominance in their respective sectors through , and in some cases today, due to growing technological advances of their products, patents , and brand recognition by their customers. There were also other companies that held the greatest market share in but at the same time did not have the competitive advantages of the companies like DuPont and General Electric.

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These companies such as International Paper and American Chicle saw their market share decrease significantly by as smaller competitors joined forces with each other and provided much more competition. The companies that merged were mass producers of homogeneous goods that could exploit the efficiencies of large volume production. In addition, many of these mergers were capital-intensive. Due to high fixed costs, when demand fell, these newly merged companies had an incentive to maintain output and reduce prices.

However more often than not mergers were "quick mergers". These "quick mergers" involved mergers of companies with unrelated technology and different management. As a result, the efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time.

Companies which had specific fine products, like fine writing paper, earned their profits on high margin rather than volume and took no part in the Great Merger Movement. One of the major short run factors that sparked the Great Merger Movement was the desire to keep prices high.

However, high prices attracted the entry of new firms into the industry. A major catalyst behind the Great Merger Movement was the Panic of , which led to a major decline in demand for many homogeneous goods.

For producers of homogeneous goods, when demand falls, these producers have more of an incentive to maintain output and cut prices, in order to spread out the high fixed costs these producers faced i. However, during the Panic of , the fall in demand led to a steep fall in prices.

Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls is to view the involved firms acting as monopolies in their respective markets. As quasi-monopolists, firms set quantity where marginal cost equals marginal revenue and price where this quantity intersects demand.

When the Panic of hit, demand fell and along with demand, the firm's marginal revenue fell as well. Given high fixed costs, the new price was below average total cost, resulting in a loss. However, also being in a high fixed costs industry, these costs can be spread out through greater production i. To return to the quasi-monopoly model, in order for a firm to earn profit, firms would steal part of another firm's market share by dropping their price slightly and producing to the point where higher quantity and lower price exceeded their average total cost. As other firms joined this practice, prices began falling everywhere and a price war ensued.

One strategy to keep prices high and to maintain profitability was for producers of the same good to collude with each other and form associations, also known as cartels.

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These cartels were thus able to raise prices right away, sometimes more than doubling prices. However, these prices set by cartels provided only a short-term solution because cartel members would cheat on each other by setting a lower price than the price set by the cartel. Also, the high price set by the cartel would encourage new firms to enter the industry and offer competitive pricing, causing prices to fall once again.

As a result, these cartels did not succeed in maintaining high prices for a period of more than a few years. The most viable solution to this problem was for firms to merge, through horizontal integration , with other top firms in the market in order to control a large market share and thus successfully set a higher price. In the long run, due to desire to keep costs low, it was advantageous for firms to merge and reduce their transportation costs thus producing and transporting from one location rather than various sites of different companies as in the past.

Low transport costs, coupled with economies of scale also increased firm size by two- to fourfold during the second half of the nineteenth century. In addition, technological changes prior to the merger movement within companies increased the efficient size of plants with capital intensive assembly lines allowing for economies of scale. Thus improved technology and transportation were forerunners to the Great Merger Movement. In part due to competitors as mentioned above, and in part due to the government, however, many of these initially successful mergers were eventually dismantled.

The U. Starting in the s with such cases as Addyston Pipe and Steel Company v. United States , the courts attacked large companies for strategizing with others or within their own companies to maximize profits. Price fixing with competitors created a greater incentive for companies to unite and merge under one name so that they were not competitors anymore and technically not price fixing.

The economic history has been divided into Merger Waves based on the merger activities in the business world as:. During the third merger wave — , corporate marriages involved more diverse companies. Acquirers more frequently bought into different industries. Sometimes this was done to smooth out cyclical bumps, to diversify, the hope being that it would hedge an investment portfolio. Starting in the fifth merger wave — and continuing today, companies are more likely to acquire in the same business, or close to it, firms that complement and strengthen an acquirer's capacity to serve customers.

In recent decades however, cross-sector convergence [39] has become more common. For example, retail companies are buying tech or e-commerce firms to acquire new markets and revenue streams. Some are more interested in acquiring thoughts, methodologies, people and relationships. Paul Graham recognized this in his essay "Hiring is Obsolete", in which he theorizes that the free market is better at identifying talent, and that traditional hiring practices do not follow the principles of free market because they depend a lot upon credentials and university degrees.

Graham was probably the first to identify the trend in which large companies such as Google , Yahoo! Many companies are being bought for their patents, licenses, market share, name brand, research staff, methods, customer base, or culture. Soft capital, like this, is very perishable, fragile, and fluid. Integrating it usually takes more finesse and expertise than integrating machinery, real estate, inventory and other tangibles.

Until , around In China, for example, securing regulatory approval can be complex due to an extensive group of various stakeholders at each level of government. Driven by U. For , market uncertainties, including Brexit and the potential reform from a U. In , the controverse trend which started in , decreasing total value but rising total number of cross border deals, kept going.

Compared on a year on year basis , the total number of cross border deals decreased by Even mergers of companies with headquarters in the same country can often be considered international in scale and require MAIC custodial services. For example, when Boeing acquired McDonnell Douglas, the two American companies had to integrate operations in dozens of countries around the world This is just as true for other apparently "single-country" mergers, such as the 29 billion-dollar merger of Swiss drug makers Sandoz and Ciba-Geigy now Novartis.

DCF, comparables share a common basic methodology. In China, India or Brazil for example, differences affect the formation of asset price and on the structuring of deals. Profitability expectations e. If not properly dealt with, these factors will likely have adverse consequences on return-on-investment ROI and create difficulties in day-to-day business operations. Studies are mostly focused on individual determinants. The study should help managers in the decision making process.

The first important step towards this objective is the development of a common frame of reference that spans conflicting theoretical assumptions from different perspectives.

Furthermore, according to the existing literature, relevant determinants of firm performance are derived from each dimension of the model. For the dimension organizational behavior, the variables acquisition experience, relative size, and cultural differences were found to be important. The turnover in target companies is double the turnover experienced in non-merged firms for the ten years after the merger. From Wikipedia, the free encyclopedia. For other uses, see Merge disambiguation and Acquisition disambiguation.

It has been suggested that this article be split into articles titled Takeover and Mergers and acquisitions.

Purchase of the company shares or purchase of individual assets

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