Influence of Mergers and acquisitions on business – Why Do Companies Merger With or Acquire Other Companies?

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In Brief:

1. You will find the best dissertation research areas / topics for future researchers enrolled in Business & Management.
2. In order to identify the future research topics, we have reviewed the Business & Management literature (recent peer-reviewed studies).
3. Mergers and acquisitions refer to the corporate restructuring activities, often done in organizations to improve their competitive advantage and enhance their returns.
4. The returns of the company will rise to a great level after a well-executed mergers and acquisitions
5. Mergers and acquisitions have a significant impact on the EPS of the firms
6. The ROCE of the firms will increase to a great extent after the execution of mergers and acquisitions

Mergers and acquisitions refer to the corporate restructuring activities, often done in organizations to improve their competitive advantage and enhance their returns. This, in turn increases the operational efficiency of the firms. In the business world, mergers and acquisition is perceived as a restructuring tool that facilitates market governance, expansion, obtainment of competitive advantage, monopoly and business portfolio diversification. Mergers and acquisitions have a number of advantages attached to them and this makes mergers and acquisitions extremely attractive in the eyes of the corporate world (Njambi & Kariuki, 2018). This is the main reason for the increase in the number of mergers and acquisitions around the world. In order to enhance the organizational performance and increase the value of the shareholders, the ownership, business mix, alliances and assets mix are restructured.

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Impact of Mergers and acquisition on Return on Equity

Return on equity is one of the most suitable measurement tools that allow the investors to measure the financial performance of the firms. The company that produces a substantial amount of return on equity is the one that has the potential to generate liquidity. Therefore, when the rate of proportion is greater, then the value base will be utilized by the firms in a more efficient manner and as results the shareholders will be able to generate proper returns (Jallow, Masazing, & Basit, 2017). Momodou Sailou Jallow et al., (2017) indicated that the rate of equity faces a steep decrease after mergers. Further, Khrawish & Al-Sa’di, (2011) stated that acquisitions often lead to a decrease in the return on equity of the firms.

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Impact of Mergers and acquisition on Return on Assets

The degree to which a company is capable of making use of the resources and assets to produce income is indicated by Return on Assets, which is a profitability ratio. It is a measure of returns generated by a firm. An appropriate synergy obtained in the firm after executing mergers and acquisitions will lead increase the return on assets produced by the company. The returns of the company will rise to a great level after a well-executed mergers and acquisitions (Yazar Soyadı, 2019).

Impact of Mergers and acquisition on Earnings per share

The association between the amount of shares outstanding and the net income is indicated by the profitability ratio, Earnings per Share (EPS). After mergers and acquisitions, the outstanding shares undergo a number of changes as the firms often make use of the shares during acquisitions in order to ensure that the profit shared among the shareholders is different. Mergers and acquisitions have a significant impact on the EPS of the firms(Sinha, Kaushik, & Chaudhary, 2010)

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Impact of Mergers and acquisition on Return on capital employed

With the help of Return on Capital Employed (ROCE), the association between the working capital of the company and the income generated before tax and interest is evaluated. The profitability and the efficacy of the capital investments of the firms are measured with the help of ROCE. The higher ROCE value of the firms is affected by the mergers and acquisitions and this indicates the utilization of the assets, which are a part of the long-term funding of the firm, is very useful and effectual in producing operating profits for the firms. The ROCE of the firms will increase to a great extent after the execution of mergers and acquisitions (Omoye & S .J., 2016).

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References

1. Jallow, M. S., Masazing, M., & Basit, A. (2017). The Effects of Mergers & Acquisitions on Financial Performance: Case Study of UK Companies. International Journal of Accounting & Business Management, 5(1), 74–92.
2. Khrawish, H. A., & Al-Sa’di, N. M. (2011). The Impact of E-Banking on Bank Profitability: Evidence from Jordan. Middle Eastern Finance and Economics, 0(13), 142–158.
3. Njambi, F. N., & Kariuki, P. W. (2018). Effects of Mergers and Acquisitions on Financial Performance of Oil Companies in Kenya. International Academic Journal of Economics and Finance (IAJEF), 3(1), 64–79.
4. Omoye, & S .J., A. (2016). Mergers and Acquisitions: The Trend in Business Environment in Nigeria. Accounting and Finance Research, 5(2).
5. Sinha, D. N., Kaushik, D. K. ., & Chaudhary, T. (2010). Measuring Post Merger and Acquisition Performance: An Investigation of Select Financial Sector Organizations in India. International Journal of Economics and Finance, 2(4), 190–200.
6. Yazar Soyadı, E. (2019). How Merger and Acquisition Affect Firm Performance and Its Quality. Journal of Accounting Finance and Auditing Studies (JAFAS), 5(3), 42–53.