The Importance of Mergers and Acquisitions in Today’s …

1 The Importance of Mergers and Acquisitions in Today's Economy Rima Tamosiuniene1, Egle Duksaite2. Abstract. Undoubtedly today we live in a time of significant II. DEFINITONS. economic change. Mergers and Acquisitions have become common business tools, implemented by thousands of companies in world. Driven by a philosophy of shareholder value they not According to Gaughan (2007), DePamphilis (2003), Scott only form a new economic, social and cultural environment, but (2003) a merger is a combination of two corporations in also enable strong companies grow faster than competitors and which only one corporation survives and the merged provide entrepreneurs rewards for their efforts, ensuring weaker corporation goes out of existence.

2 In a merger, the acquiring companies are more quickly swallowed, or worse, made company assumes the assets and liabilities of the merged irrelevant through exclusion. The article answers the question company. Moreover, although the buying firm may be a why Mergers and Acquisitions (M&As) are important in today's considerably different organization after the merger, it retains economy. It presents the advantages of M&A deals and its original identity. underlines their features. It also presents the correlation analysis An acquisition occurs when one company takes a on selected factors and results of research completed among Lithuanian companies.

3 The article concludes that the number of controlling ownership interest in another firm, a legal M&A transactions most likely will increase. subsidiary of another firm, or selected assets of another firm such as a manufacturing facility (DePamphilis, 2003). In other Keywords Mergers and Acquisitions , M&A, advantages, words, an acquisition is the purchase of an asset such as a Importance . plant, a division, or even an entire company (Scott, 2003). On the surface, the distinction in meaning of merger and I. INTRODUCTION acquisition may not really matter, since the net result is often the same: two companies (or more) that had separate Having in mind, that the increase of inter-dependence of ownership is now operating under the same roof, usually to markets for various goods and services as well as increasing obtain some strategic or financial objective.

4 Yet the strategic, foreign competition, it is obvious, that today we live in a time financial, tax, and even cultural impact of a deal may be very of significant changes. That's why many companies are different, depending on the type of transaction (Sherman, Hart expanding their geographic reach and grow. Companies which 2006). choose to grow, normally try to take an additional market share, reach new customer base, create economic profits, III. REASONS BEHIND DECISION TO PARTICIPATE. provide returns for their stakeholders, etc., while companies IN M&A DEALS. which choose not to grow, are obviously doomed to failure due their loss of customers and market shares, destroyed shareholder and stakeholder values and so on.

5 First reason growth. There are many reasons why Today growth in many cases occur through Mergers and companies decide to participate in M&A deals. The primary Acquisitions (M&As): during the last few years there was over reason is the determination to grow. There are two growth M&A transactions, equivalent to the completion of options: internal or organic growth ( hiring additional one deal every 17 minutes (Faulkner, Campbell, 2003). salespeople, developing new products, expanding M&As have many potential benefits, which mainly focus geographically, which in fact is a very time and strength on boosting profits and shareholder value through: consuming option); and inorganic growth ( acquisition of the economies of scale produced by increasing market or merger with another firm, often done to gain access to a share; new product line, customer segment, or geography) or by the expanded use of an existing distribution network by external means ( franchising, licensing, joint ventures, the acquisition of new product capabilities.)

6 Strategic alliances, and the appointment of overseas the extension of a strong product capability into new distributors, which are available to growing companies as an markets; alternative to Mergers and Acquisitions as a growth engine). the diversification of product and market risks. In response to the good growth prospects, Mergers and This way Mergers and Acquisitions become an essential tool Acquisitions , just like internal investments, are means for for corporate development in today's global marketplace, companies to increase their capital base, as concluded by which is characterized by consolidation, convergence, the Andrade, Stafford (2004).

7 Competition for talent and technology, and the increasing Importance of such intangible assets as knowledge, skills and customer relationships. 2. 1 Egle Duksaite, Postgraduate. Department of financial engineering, Rima Tamosiuniene, Assoc. Prof. Dr. Department of financial Faculty of business management, Vilnius Gediminas technical engineering, Faculty of business management, Vilnius Gediminas university, Sauletekio ave. 11, Vilnius, Lithuania technical university, Sauletekio ave. 11, Vilnius, Lithuania 11. It is obvious that companies may grow within their own skills or an asset currently employed in producing a specific industry or they may expand outside their business category, product or service to produce related products or services).

8 Which means diversification. An example of using M&A to 2. Financial synergy, which refers to the impact of Mergers facilitate growth is when a company wants to expand to and Acquisitions on the cost of capital of the acquiring firm or another geographic region. It could be that the company's the newly formed firm resulting from the merger or market is in one part of the country but it wants to expand into acquisition . Theoretically, the cost of capital could be reduced other regions. Alternatively, perhaps it is already a national if the merged firms have uncorrelated cash flows, realize company but seeks to tap the markets of other nations, such as financial economies of scare, or result in a better matching of a firm wanting to expand into Europe or contrary.

9 In investment opportunities with internally generated funds. many instances, it may be quicker and less risky to expand Third reason is access to intangible assets. The emergence geographically through Acquisitions than through internal of the knowledge era since the 1980s has brought significant development. This may be particularly true of international change in both global and local markets. Knowledge, as a core expansion, where many characteristics are needed to be organizational resource and the basis for the development of successful in a new geographic market. The company needs to organizational capabilities, is playing a key role in driving know all of the nuances of the new market and to recruit new changes in companies.

10 Today the value of knowledge-based, personnel and overcome many other hurdles such as language, intangible resources has grown geometrically in companies. culture and similar barriers. Internal expansion may be much The intangible assets include (Saint-Onge, Chatzkel, 2009): slower and difficult. 1. Human capital, which is the sum of all the capabilities of In Lithuania, growth is the most common reason cited as a everyone who's currently working in company, , the motive for M&A transactions. For example, let's have a look cumulative knowledge, experience, attributes, competencies, at Societe Generale Consumer Finance acquisition of General and mindsets of all employees, managers, and leaders.