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Increase Synergy Value, High-Cost Efficiency and Increase Economies of Scale

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This paper illustrates that international merger and Acquisition strategy is a source of synergy and surplus power that enables a firm to boosts its performance and efficiency. Companies coming together in the mergers and acquisitions have different market shares that would give them a better performance index if they combined efforts. The move also increases cost efficiency for firms that deal with the same product or come from the same industry. The combined effort results in an entity that enjoys immense profit and related financial gains that single rival firms cannot get from the market.

Consequently, increased synergy is associated with the topology of market power gain as well as empire-building aimed at reaching a global level.     Additionally, the increased synergy value that is in a number of forms including revenues, expenses, and cost of capital ensures that the new legal entity realizes revenues and a lower overall cost of capital. This corresponds to the synergistic theory, which indicates the ability of two combined companies to be more profitable compared with the two firms individually. AT& T acquisition of DirecTV is a move seen to acquire synergy and build an empire.

Mergers and acquisitions allow the firming together to enjoy high-cost efficiency. The strategy improves the purchasing power of the new entity in which merged firms have increased funds to make purchases. One of the top considerations for mergers and acquisitions is reducing the number of staff members with the aim of cutting overall cost and give room for more profit margins. New entities gain the power to increase the volume of production, but at a reduced cost compared to an individual company.

The cost per unit production is kept in check and reduced to a manageable level; hence, increase economies of scale that counter any error or excess production. This corresponds to the theory of financial synergy, which hypothesis that two combined companies enjoy lower costs of internal financing, which aims at increasing the market power as well as building an empire.

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preview essay on Increase Synergy Value, High-Cost Efficiency and Increase Economies of Scale
  • Pages: 14 (3500 words)
  • Document Type: Essay
  • Subject: Business
  • Level: Undergraduate
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