Wall Street Journal Article Answers

1. How well do most acquisitions work out? What do the statistics tell us about the wisdom of most acquisitions? Why have most companies been nonetheless irresistibly tempted by acquisition strategies?  

Most acquisitions do not work out well. An acquisition is a transaction where one company buys either the shares or the assets of another company, by issuing its own new shares, cash, debt or a mixture of these forms of consideration. In all M&A transactions there is a ‘predator’ and a ‘victim’, whatever euphemisms may be used to describe the deal. For this reason alone, it is essential that the directors and shareholders of acquiring companies and their targets have a clear understanding of the ventures on which they are embarking, how to structure them, how to identify and approach potential partners, how to carry out the purchase or sale negotiations, and how to appoint and make the best use of advisers. Shareholders and directors will also need

to develop their knowledge of the complex legal documentation and processes

involved, as well as the taxation implications for their companies and themselves,

and employment and insurance issues. If these things are not focused upon the acquisitions do not work out.

According to Scot Thurm most acquisitions do not workout but it is hard to generalize. Write-offs surged after the 2008 financial crisis as stock prices plunged and companies lowered profit forecasts.

Most acquisitions follow the market trend. A big company would usually like to buy out its competitor or a growth company. Unfortunately, before an acquisition you cannot match the synergies of the two companies to know if:

* they focus on growth rather than only cost savings

* integrate easily to form the merged entity

* deliver benefits that materialize over the long term

Most companies have still been tempted by acquisition strategies since it is an easy way for growth. It is a way they can diversify into a new geographical market or a...