Business mergers and acquisitions are transactions involving the ownership and control of companies, partnerships or other organizations. Mergers and acquisitions allow organizations to increase and reduce their size and change their competitive position, making them an aspect of corporate strategy.

The decision to carry out a merger or acquisition is an economic decision, specifically it consists of an investment decision, understood as such, the allocation of resources with the hope of obtaining future income that will allow the invested funds to be recovered and achieve a certain profit. Therefore, a merger or acquisition will be successful if the purchase price is lower than the present value (VA) of the incremental cash flow (EF) associated with the operation. If this is so, this investment decision creates value for shareholders and can be considered successful, otherwise it is said to destroy value and is considered a failure.

Mergers are motivated by different objectives that define two different types of buyers:.

These different objectives have in common the need to add value to the acquired company. Mergers and acquisitions are a good idea when the market value of the combined company is greater than the value of the two companies considered independently; when the result is greater than the sum of the parts, a synergistic effect is said to have occurred. Likewise, all mergers and combinations of companies have the potential to eliminate competition between them, thus creating monopolies.

Motives that develop value

Although the primary objectives of financial and strategic buyers are different, they both have in common the need to add value to the acquired company. The ways that buyers can add value through mergers and acquisitions strategy are in essence:

Debatable reasons

There are some debatable reasons when justifying the economic rationality of a business purchase or merger. Among them are:

The consulting firm McKinsey studied 115 large acquisitions from the early 1990s worldwide, and found that between three and five years later, 60% failed to produce returns greater than the cost of capital required to finance the purchases and only 23% were successful.[1]

Given this poor result, it is important to know the reason for the frequent failure of mergers, acquisitions and investments. The main reasons for these failures are:.

M&A information[2]​.