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Learning: Mergers And Acquisition:


Entrepreneur can obtain 100 percent ownership to ensure complete control. Many U.S. entrepreneurs desire complete ownership and control in cases of foreign investments. If the entrepreneur has the capital, technology, and marketing skills required for successful entry into a market, there may be no reason to share ownership.



Mergers and acquisitions have been used to significantly in engaging in international business as well as within the United States. During periods of intense merger activity, entrepreneurs may spend significant time searching for a firm to acquire and then finalizing the transaction. While any merger should reflect basic principles of any capital investment decisions and make a net contribution to shareholders' wealth, the merits of a particular merger are often difficult to assess. Not only do the benefits and cost of a merger need to be determined, but special accounting, legal, and tax issues must be addressed. The entrepreneur therefore must have a general understanding if the benefits and problems of mergers as a strategic option as well as an understanding of the complexity of integrating an entire company into present operations.



Mergers are a sound strategic option for an entrepreneur when synergy is present. Several factors cause synergy to occur and make two firms more together then apart.



The first factor,  economies of scale, is probably the most prevalent reason for mergers. Economies of scale can occur in production, coordination, and administration, sharing central services such as office management and accounting, financial control, and upper-level management. Economies of scale increase operating, financial, and management efficiency. Thereby resulting in better earnings.



The second factor is taxation, or more specifically, unused tax credits. Sometimes a firm has had a loss in previous years but not enough profits to take tax advantage of the loss. Corporate income tax regulations allow the net operating losses of one company to reduce the taxable income of another when they are combined. By combining a firm with a loss with firm with a profit, the tax-loss carryover can be used.



The final important factor for mergers is the benefits received in combining complementary resources. Many entrepreneurs will merge with other firms to ensure a source of supply for key ingredients, to obtain new technology, or to keep the other firm's product from being a competitive threat. It is often quicker and easier for a firm to merge with another that already has a new technology developed - combining the innovation with the acquiring firm's engineering and sales talent, than to develop the technology from scratch.



Source: The Entrepreneurial Perspective

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Point to ponder:
If none endeavour there would be an end to discovery.


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