Introduction to Corporate Finance

21: Mergers, Acquisitions and Corporate Control

FIGURE 21.7 FOREIGN ACQUISITIONS OF AUSTRALIAN TARGETS IN 2014, BY NATION,VALUE AND VOLUME

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Canada

United States of America

Hong KongSingaporeSouth Africa

United Kingdom

Papua New Guinea

New Zealand

MalaysiaGermany

South Korea

IndiaJapan

USD Billions

Target Nation (Australian

Acquiror)

Acquiror Nation (Australian

Target)

Notes: Cross border transactions are shown where nations were involved as both significant acquirors and targets
Source: Data to create figure sourced from SDC Platinum, Thomson Reuters,19 December 2015.

21-2 WHY DO COMPANIES MAKE

ACQUISITIONS?

If you were in charge of the world economy, one of your goals would be to place assets into the hands

of the investors or companies that value them the most. This would allow the economy to be most

productive and efficient. Given that no one person organises the economy, other means such as mergers

and acquisitions attempt to accomplish this goal.

The outcome of acquisitions can often be disruptive: companies are sometimes broken up, employees

are often laid off and some divisions may be shut down. While painful in the short run, mergers and

acquisitions play a very important role in helping an economy allocate resources efficiently. By moving

assets to new companies or investors where they can be used more productively, M&A is often good for the

economy’s health in the long run. For example, mergers and acquisitions, along with resource reallocation

CONCEPT REVIEW QUESTIONS 21-1

1 What are three explanations for merger waves? Which of these provides the best explanation for

the decline in M&A activity during the recent financial crisis and recession?

2 Figures 21.5 and 21.6 show that companies are much more likely to acquire other companies in

the same region than they are to acquire companies from another region. Why do you think this is

the case?