List and explain the sources of merger Synergies

1. Economies of Scale – Firm managers seem to believe that their firm will be more competitive if they were larger in size. Savings would also be incurred from the consolidating operations and eliminating redundant costs.

2. Economies of Vertical Integration – Vertical mergers seek economies in vertical integration. Some companies try to gain control over the production process by expanding back toward the output of the raw material and forward to the ultimate consumer.

3. Complementary Resources – Many small firms are acquired by large ones that can provide the missing ingredients necessary for the small firm’s success.

4. Surplus Funds – Firms with a surplus of cash and a shortage of good investment opportunities often turn to mergers financed by cash as a way of redeploying their capital.

5. Eliminating Inefficiencies – There are always firms with unexploited opportunities to cut costs and increase sales and earnings. Such firms are natural candidates for acquisition by other firms with better management.

6. Industry Consolidation – The biggest opportunities to improve efficiency seem to come in industries with too many firms and too much capacity. These conditions seem to trigger a wave of M&A which then force companies to cut capacity and employment and release capital for reinvestment elsewhere.

---

francis1897 answered the question on February 27, 2023 at 06:18