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Merger between RBS and ABN as the Largest Deal and the Biggest Failure in Financial Services Industry

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Both ABN and RBS were working in the same industry at the time of acquisition and the industry as a whole was faring well. It is also however, important to note that this merger took place just before the financial crisis started to hit the financial services industry and many still consider this acquisition as the biggest strategic mistake made by RBS. These concerns proved correct as RBS along with other financial institutions were bailed out by UK government to keep them solvent. It is also important to note after the merger flurry financial industry, in the past, also attempted to rebrand themselves and banks became universal service providers offering various under one roof. ( Lambkin Muzellec, 2008) Why do companies acquire each other and merge is an important debate in the field of corporate finance.

It is also one of the most debated topics in the field because of its unique nature and overall impact on the organizational effectiveness and efficiency. Mergers and acquisitions are often therefore done on the assumption that organizations will be able to achieve their strategic objectives. (Berk & DeMarzo, 2007). There are critical differences between a merger and acquisition as in merger two companies merge with each other to form one company however, in acquisition a company acquires another company.

It is also however, important to understand that underlying these differences are different factors which depend upon the nature of the deal. The financial, strategic as well as cultural aspects of each deal therefore are relatively different and even vary from firm to firm and deal to deal. ( Vishwanath, 2007). One of the fundamental aspects of mergers and acquisitions lies in the strategic questions of whether a firm will be better off with buy and build decisions.

(Brealy, Myers & Allen, 2008). Though in services oriented organizations such question may be hard to answer however, where manufacturing organizations the question of whether a firm will be better off buying a new asset or business matters a lot.

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