Why are acquisitions such a popular method of strategic development despite the evidence that they are often unsuccessful?

Essay by joanabeckUniversity, Bachelor'sC+, April 2005

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The reason for immediate objective of an acquisition is self - evidently growth and expansion of the acquirer's assets, sales and market share.

For example, the aim of integration of Salora and Luxor by Nokia was to arrange production in a more optimal way and to utilise more effectively all the possibilities of synergy, including integrating production plants in a total product planning and production system

BMW thought about acquiring Rover as it was to small to survive on its own. However, a more fundamental objective may be the enhancement of shareholders' wealth through acquisitions aimed at accessing or creating sustainable competitive advantage for acquirer. Such an advantage may stem from economies of scale, market power or access to unique strengths, which the acquired company may possess. For example, BMW through acquisition of Rover was able to offer a rage of cars in every category.

Basically, a company decide to acquire another company in order to gain competitive advantage for the firm that could raise profits and speed the entrance to new markets.

Acquisitions involve bringing together of two organisations with often disparate corporate personalities, cultures and value systems. This often centres around the problems of cultural fit. Where acquisition is being used to acquire new competences this " clash of cultures" may arise because the organisational routines are so different in each organisation. Cultural differences reflected the way that the decisions were made in the acquirer and target companies.

From the above discussion might be concluded that success of acquisitions depend on how well the organisations are integrated. Sometimes, the integration process might be more difficult if acquisitions are driven by managerial ego or desire for power. Acquisitions driven by managerial self - interest may fail and cause wealth losses for shareholders.

Successful acquisitions are distinguished from failed ones...