Mergers & Acquisitions (M&A)

Yugyeong Jeong

M&A refers to mergers and acquisitions of companies, that is, acquisitions that seek to acquire management rights through the acquisition of assets or stocks of other companies, or mergers in which two or more companies are legally incorporated into one company. In recent years, M&A includes not only mergers and acquisitions of companies, but also joint ventures and strategic alliances that establish financial relationships. Motives for M&A vary from business strategy, business, and financial factors.

First of all, M&A maintains corporate growth and sustainability in the part of business strategy that sets the direction of corporate growth. A company can promote growth through internal and external strategies. The internal growth strategy is based on the company’s human and material resources and management know-how. However, it is judged that the internal growth strategy alone has limitations, such as entering a new industry, so M&A is used as an external growth strategy. There is also a plan to acquire overseas companies to secure production bases abroad to develop technology and to receive a stable supply of raw materials. In the current era of rapid technological development and development, acquiring companies with appropriate capabilities or potential is also a part of strategic M&A.

Second, in terms of sales motivation, acquisitions of existing companies can save time when entering new markets. If the size of a company increases through M&A, market dominance increases, and if the M&A is performed horizontally between industries of the same type and the production scale expands, the effect of economies of scale occurs. However, there are also acts that are regulated by law because of the risk of market disruption. Third, financially motivated mergers and acquisitions have the effect of diversifying risk, increasing financing capacity, and reducing taxes.