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Mergers and acquisitions generally succeed in generating cost efficiency through the implementation of economies of scale. It may also lead to tax gains and can even lead to a revenue enhancement through market share gain.
Birds Eye View of the Benefits Accruing from Mergers and Acquisitions
The principal benefits from mergers and acquisitions can be listed as increased value generation, increase in cost efficiency and increase in market share.
Mergers and acquisitions often lead to an increased value generation for the company. It is expected that the shareholder value of a firm after mergers or acquisitions would be greater than the sum of the shareholder values of the parent companies.
An increase in cost efficiency is effected through the procedure of mergers and acquisitions. This is because mergers and acquisitions lead to economies of scale. This in turn promotes cost efficiency. As the parent firms amalgamate to form a bigger new firm the scale of operations of the new firm increases. As output production rises there are chances that the cost per unit of production will come down.
An increase in market share is one of the plausible benefits of mergers and acquisitions. In case a financially strong company acquires a relatively distressed one, the resultant organization can experience a substantial increase in market share. The new firm is usually more cost-efficient and competitive as compared to its financially weak parent organization.
It can be noted that mergers and acquisitions prove to be useful in the following situations:
Firstly, when a business firm wishes to make its presence felt in a new market. Secondly, when a business organization wants to avail some administrative benefits. Thirdly, when a business firm is in the process of introduction of new products. New products are developed by the R&D wing of a company.
Employee Benefits under Mergers and Acquisitions in US
The 'Employee Retirement Income Security Act' was enacted in 1974. It is also known as ERISA. Since then programs for employee benefit have been a major component of the balance and income statements of US business organizations.
Current law promulgations have attached supreme importance to the presence of post retirement pension schemes and welfare benefit schemes as a part of corporate obligation. As a result employee benefit programs are affecting the viability of mergers and acquisitions in the USA.
Expenses accruing due to employee benefit programs may not be fully reflected in a company's balance sheet. Some employee benefit obligations may arise out of a change in the corporate structure of a firm. Retirement income schemes and benefit plans may vary from company to company. Companies going for mergers and acquisitions strive to iron out the internal differences to maintain a specified level of employee satisfaction.