Globalisation has changed the appearance of the economy. Especially in the 1990’s firms expanded into new markets to operate more global and to develop their business. To do so, many companies choosed to expand via corporations with other companies to make the market entry easier or simply to strenghten their market position.
Mergers and acquisition became one of the most used tools for development, whereas a merger between well known and successful companies always caused a sensation. Mergers caused such a stir as the companies involved in a merger faced a complete new identitiy and innovations were about to alter the company.
The research project proves the decision for a merger rather than an alliance and the synergies gathered due to this tool of development. Two companies, Daimler-Benz and Chrysler, are investigated to illustrate the academic frameworks in practice to come to a conclusion why they merged. Methodology includes analysis of secondary data which has been published on the subject area.
The findings and analysis of the research conducted, concluded that synergy is the most important aspect when companies grow through mergers. Furthermore, the results show that internationalisation due to globalisation is the key driver of mergers.
The paper concludes with an evaluation of the study and recommendations for further research.
1.1. Reason for Choice of Topic
Companies come and go, chief executives rise and fall, industry sectors wax and wane, but an outstanding feature of the past decade has been the rise of mergers and acquisitions (M&A). Whether in times of boom or bust, M&As continue to be the preferred option for businesses seeking to grow rapidly.
A company has several options to choose from when it comes to growth strategies. One option is to grow organically by increasing sales personnel, new product developments and by expanding into new geographical areas. Alternative options to achieve the desired growth, companies traditionally build, buy, merge with other companies or co-operate through alliances. However, the best example of how to grow inorganic is to merge or aquire (Sherman, 2005).
M&As are mainly about growth according to Lees (2003) and Sudarsanam (2003). Internal or organic growth is in most cases a slow process and M&As is another option that will increase the growth process. By doing an M&A deal, the acquiring company or the merged companies can get instant access to new markets, technology and operations can be completed more efficiently. Several reasons and motives exist why a company chooses to grow through M&A. According to Gaughan (2002) the most common motive for M&A is to create synergy. However, other motives play also an important role, like diversification, improved management, market power or tax motives. Johnson and Scholes (1997) state that M&As are a quick way of entering new markets or products. The company can also gain competences or resources through this way. Knowledge about the market situation is also a significant cause why companies choose to develop through M&A. Another reason for companies to develop through M&A is that they are actively searching for benefits arising from synergies.
The author has chosen the topic to gain further knowledge about the topic of why do companies actually merge to gain synergy. The reasons for attempting to gain further knowledge are based on the author’s fascination on M&A in general and to the extend why Daimler-Benz and Chrysler did actually merge. The split between those two has not been long ago and therefore the author was particularly interested in this merger. Furthermore, the author is interested what type of synergies were the most relevant in this ‘merger of equals’.
1.2. Academic Obejctives of Dissertation
This research aims to point out that synergies play an important role when two companies are doing a corporation in order to grow.
The author has chosen the following objectives in order to support the research hypothesis:
- To discover why companies select mergers instead of strategic alliances as tool for development
- To investigate to what extend synergies play an important role when merging
- To explore the importance of internationalisation in times of globalisation
1.3. Outline of Chapters
- Introduction: Introduces the topic of this research and explains the aims and objectives of the study.
- Setting the scene: This chapter is to set the scene for the study. It presents background information about the two companies and what actually did happen.
- Literature review: Discusses the academic literature on mergers and acquisition and synergies concentrating on several approaches to be applied to the case study.
- Methodology: Discusses how the research was conducted and recognizes any limitations and biases of the chosen methods. It involves a description of how the research and data was analysed.
- Findings: Presentaion of the case study including important information for the research
- Analysis: The findings from the secondary research are analysed against the earlier literature and research from chapter three.
- Conclusion: The research project is finally concluded, commenting on the initial objectives of the study. The limitations and recommendations for further research are also discussed in this chapter.
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