Merger and Acquisition vs Strategic Alliance: A Critical Analysis

This essay provides a brief introduction about the priority of merger and acquisition strategy of an organization over strategic alliance. It explains the meaning and scope of merger and acquisition in an organization. The critical analysis of the benefits and drawbacks of merger and acquisition is discussed with examples of successful and failed mergers.

RUNNING HEAD: Business Strategy
Business Strategy
[Type the author name]

Business Strategy 1
“The key benefit of Mergers and Acquisitions, over Strategic Alliances, is that they lead to the
development of and access to new knowledge, particularly as this external development activity
is fundamental in an organisation’s strategic development of knowledge”.
The purpose of this essay is to provide a brief introduction about the priority of merger and
acquisition strategy of an organization over strategic alliance. The essay aims to explain the
meaning and scope of merger and acquisition in an organization. There are basically three or
four ways to deal with the process of development and expansion in an organization. Organic
growth is an internal process that helps the management to expand their scope of business and
activities in the target market. This type of strategy includes reconfiguration, reallocation,
redeployment and lastly development of resources. Further, the external development factors are
merger and acquisition, and strategic alliance (Cuypers, Cuypers, and Martin 2017). All the
aspects are considered in helping the organization to grow and succeed but merger and
acquisition is the best way that helps a business to expand in the market successfully. Further,
more details about this aspect are discussed below:
Critical Analysis
Merger and acquisition has become a strategic choice for the growth of organizations and
achievement of business goals including profits, long term survival and market dominance. The
process of merger and acquisition helps a business to systematically grow in the external market.
Further, it should be noted that both the terms merger and acquisition are used together and
interchangeably as well, however both the terms have specified meaning in real. Sherman and
Hart (2006) expressed that merger is a combination of two or more organizations; under this
process the assets and liabilities of the sold firm is used by the firm that is buying the
organization. In this way one organization merges into another organization. One significant fact
under this type of association is that the firm that is best sold merges its identity into another
organization that is buying the company; one company has to certainly loose its identity anyhow.
Also, aspect of merger is that one or more existing organizations can merger into each other to
form another new and different organization (Sherman 2018). The merged company contributes

Business Strategy 2
all its assets and liabilities into the merging company. The shareholder of the merged company is
also being held by the merging organization. Further, according to Krishna and Vishwanath
(2008), acquisition refers to the process under which one company purchases the substantial part
of the securities of another organization that is being regarded as the target company. Acquisition
can be in the form of co-operation or hostile as under this case the purchaser company overtakes
a small or large part of the target company’s shares. Under this case a larger firm purchases a
small firm; and acquisition is also called takeover (Howson 2017).
Further strategic alliance refers to the partnership of one organization with another under which
they decide to share the resources and undertake a specific mutually beneficial project. Strategic
alliance is like joint venture but it is less binding and involves less involvement. It is a mutually
beneficial project under which each company maintains its autonomy while gaining new
opportunities. Further, relating the concepts with the above mentioned phrase, it should be noted
that among all the strategies developed in the market for organizational growth and development,
merger and acquisition is so far the best strategy that the organizations should implement while
developing their business strategically (Drury‐Grogan 2017).
Further, it should be noted that the organizations should adopt the merger and acquisition
strategic tool over the strategic alliance because it provides various types of benefits to the
company with the help of which both the organizations can earn reputable income in the target
market. The initial motive of merger is growth; it is regarded as the most important motive to
initiate prosperity for the business. Further, growth is broadly divided into two alternatives that
are internal growth and external growth. In the process of internal growth, the organization needs
to invest in their resources on order to create facilities for expansion (Appelbaum, et al., 2017).
But this process is a slow and ineffective process, so the organization should make use of the
external expansion strategies that helps the business to effectively earn in the target market. It is
a faster way to achieve growth and acquire revenue to achieve competitive goals as well. So, it
should be noted that the process of merger and acquisition successfully helps the business in
achieving growth process. Another reason due to which, organizations should make use of
merger and acquisition strategy is due to operating synergy. Synergy is one of the most important
reasons to go for merger in an organization (Shodhganga 2018). The process of synergy simply

Business Strategy 3
explains that the merger of organization will be more than the sum of value of the individual
organizations merged. The sum would be more than the amount of the combination of the value
of both the companies. Symbolically
V (A Co.) + V (B Co.) < V (AB Co.)
V (A Co.): Value of A Company
V (B Co.): Value of B Company
V (AB Co.): Value of merged company
This process of increase in the value of the firm with the reduction in costs helps the company to
attain high revenue as well. Operating Synergy activity believes that the economies of scale
occurs in the industry and prior to the activity of merger and acquisition, the companies operate
their activities at the levels that fall short in helping the company to achieve the potential
assumed for the economies of scale. Revenue is enhanced and costs of production and other
activities are saved by the company through merger and acquisition (Motis 2007). Further, one of
the motives for applying the method of merger and acquisition is that it provides financial
synergy to the organizations. Better credit worthiness is received to organizations as it helps the
business in purchasing goods on credit basis easily. As the name of the organization is linked
with another organization having good credit rating gives an advantage to the company in
initiating bank loans and raise capitals in the market. Further, the process of M&A also reduces
the cost of capital as it increases the authenticity of the organizations (Kansal, and Chandani
2014).
This process also provides various benefits to the business, resulting to which the companies
should adopt this process over strategic alliance. Merger and acquisition helps in diversification
of risks for the organizations. When an organization comes produces a single product then there
is high degree of risk as the demand and supply for that product can fluctuates the profit margin
of the organization (Lebedev, Peng, Xie, and Stevens 2015). This aspect increases the level of

Business Strategy 4
risks for the organization. The diversification in the product segment also diversifies the risks for
the firm, as with the help of this process the companies can easily segregate their risks in
different activities. Resulting to which, failure in managing one product will not affect another
products growth in the environment (Shodhganga 2018). So, the merger of the organization that
is providing negative returns will automatically disburse the loss with other organization and
subsequently attain stability as well. Apart from diversification of risk, the process of merger and
acquisition helps the organizations to build a strong empire in the target market. It is always said
that two is always better than one alone; similarly two organizations working together are better
than one single organization fighting alone the market. With the aspect of merger, the company
gets the advantage to manage large firms with more power that results in better accountability at
work (Angwin, and Meadows 2015).
However, it should be noted that merger and acquisition have some good aspects and the bad one
as well. Not in all cases the companies attain success with the aspect of the merger and
acquisition, there are numerous examples of companies that have failed due to joining their
alliance with other company by using the process of merger and acquisition. Apart from adoption
of this strategy, many organizations face problems in implementing the actions of merger and
acquisition at workplace. Now, critically challenging the above mentioned all the concepts it
should be noted that the companies face a hard time in adopting the merger and acquisition
strategies for the business (Greve, and Man Zhang 2017). Loss of experienced workers for the
organization is one of the biggest opportunity loss for the merged firm. It depends upon the
discretion of the ruling organization to hire the existing employees of the merged organization or
not; also if they are employed then also the employees require re-skilling according to the
changing business requirements (Zollo, and Singh, 2004).
Internal competition also arises in organization with the effect of M&A as employees create
groups in which they work and thrive to perform better that other merged organization. Cost of
the organization also increases with the effect of diversification. In the above stanzas the
diversification activity is acting as a benefit for the organization however it can act as a threat as
well. Also, duplication of work increase if two organizations involved in similar business
activities merges into each other. Lack of proper management and leadership at workplace can

Business Strategy 5
also increase the costs of the business. If the organization is unable to understand the real need of
M&A in the business then it can negatively affect their resources and costs as well. The level of
uncertainty increases with the merger and acquisition alliance of the companies. Also, if the loss
of the merged organization suppresses the activities of merger organization then instead of
increasing the profits, this process can negatively affect the growth of the organization.
Flexibility of the company is also reduced with this process; although the act of M&A is itself an
innovative process initiated by the companies for the purpose of growth, however after that
process flexibility is reduced (Dutordoir, Roosenboom, and Vasconcelos 2014).
Furthermore, relating the above mentioned issues to the example of some companies it should be
noted that the companies face issues in implementing M&A due to various reasons. Like, Abbey
National and Bank of Scotland failed to materialize the M&A activities because of the inability
of the senior managers to agree on same terms. It is important for both the parties to create a
contract that is beneficial for them and lead the organization according. However, sadly the
senior management of both the companies failed to do so that resulted in failure of the alliance
(Bena, and Li 2014).
On the contrary, talking about a successful merger, it should be noted that the alliance of the
company Disney with Pixar perfectly helped both companies to succeed in the target market. In
the above mentioned stanzas it was discussed that M&A might fail due to the overlapping and
repetition of similar activities if both the companies are involved in same business. However,
both the companies ditched this fact as they perfectly co-operated with each other and gained
success in the entertainment industry. The collaboration introduced various other successful
movies as well (Tanriverdi, and Bülent Uysal 2015). One similar merger was of the companies
Adidas and Reebok in the year 2005 for $3.8 billion. With the effect of this process the shares of
the companies Reebok increased by 30% Adidas by 7.4 %. The process was a friendly takeover
under which Adidas bought all the shares of Reebok and joined hands instead of competing. This
type of alliance helped both the companies to eliminate competition against Nike and share
resources and improve as well. The similar type of work of both the companies did not hamper
the growth of collaboration nor the different corporate culture as well. Now explaining about the
companies that merged and failed severely are America Online and Time Warner. The merger of

Business Strategy 6
these two companies is regarded as the biggest failure of all times; in the year 2001, the company
AOL acquired Time Warner in the form of a mega merger for $165 billion but after the dot-com
bubble burst, the value of the company subsequently reduced. This aspect resulted in the process
of writing-off the goodwill of the company AOL (Tarba, et. al., 2017). The company also faced
difficulty to grab the opportunity of internet based search advertising. However, the company
faced difficulty in initiating communication post-merger and acquisition along with which
difference in values and goals also hampered the overall operations of the companies (Brueller,
Carmeli, and Markman 2018).
Thus, in the limelight of above mentioned events the fact that should be noted is that the use
merger and acquisition technique provides several benefits to the companies in current era.
According to the statement mentioned at the beginning of the essay, it was evaluated that the
collaboration of companies by the way of merger and acquisition is better than strategic alliance.
The statement holds true according to the benefits and growth gained to the companies using this
process. However, it cannot be said that M&A always helps the companies to grow in the target
market. The essay also discussed some of the examples of the companies that failed due to the
process of merger and acquisition. The above mentioned essay successfully depicted the critical
view of the merger and acquisition in the external market.

Business Strategy 7
References
Angwin, D.N. and Meadows, M., 2015. New integration strategies for post-acquisition
management. Long Range Planning, 48(4), pp.235-251.
Appelbaum, S.H., Karelis, C., Le Henaff, A. and McLaughlin, B., 2017. Resistance to change in
the case of mergers and acquisitions: part 2. Industrial and Commercial Training, 49(3), pp.139-
145.
Bena, J. and Li, K., 2014. Corporate innovations and mergers and acquisitions. The Journal of
Finance, 69(5), pp.1923-1960.
Brueller, N.N., Carmeli, A. and Markman, G.D., 2018. Linking merger and acquisition strategies
to postmerger integration: a configurational perspective of human resource management. Journal
of Management, 44(5), pp.1793-1818.
Cuypers, I.R., Cuypers, Y. and Martin, X., 2017. When the target may know better: Effects of
experience and information asymmetries on value from mergers and acquisitions. Strategic
Management Journal, 38(3), pp.609-625.
Drury‐Grogan, M.L., 2017. Mergers and Acquisitions. The International Encyclopedia of
Organizational Communication, pp.1-11.
Dutordoir, M., Roosenboom, P. and Vasconcelos, M., 2014. Synergy disclosures in mergers and
acquisitions. International Review of Financial Analysis, 31, pp.88-100.
Greve, H.R. and Man Zhang, C., 2017. Institutional logics and power sources: Merger and
acquisition decisions. Academy of Management Journal, 60(2), pp.671-694.

Business Strategy 8
Howson, P., 2017. Due diligence: The critical stage in mergers and acquisitions. UK:
Routledge.
Kansal, S. and Chandani, A., 2014. Effective management of change during merger and
acquisition. Procedia Economics and Finance, 11, pp.208-217.
Lebedev, S., Peng, M.W., Xie, E. and Stevens, C.E., 2015. Mergers and acquisitions in and out
of emerging economies. Journal of World Business, 50(4), pp.651-662.
Motis, J., 2007. Mergers and Acquisitions Motives. Toulouse School of Economics. Pp: 2-30.
Sherman, A., 2018. Mergers and Acquisitions from A to Z. USA: Amacom.
Shodhganga., 2018. Introduction to Mergers and Acquisitions [online]. Available from <
http://shodhganga.inflibnet.ac.in/bitstream/10603/12642/5/05_chapter%201.pdf> [Accessed on
July 5, 2018].
Shodhganga., 2018. Mergers and Acquisitions [online]. Available from
http://shodhganga.inflibnet.ac.in/bitstream/10603/117606/9/09_chapter%201.pdf [Accessed on
July 5, 2018].
Tanriverdi, H. and Bülent Uysal, V., 2015. When IT capabilities are not scale-free in merger and
acquisition integrations: how do capital markets react to IT capability asymmetries between
acquirer and target?. European Journal of Information Systems, 24(2), pp.145-158.
Tarba, S.Y., Ahammad, M.F., Junni, P., Stokes, P. and Morag, O., 2017. The impact of
organizational culture differences, synergy potential, and autonomy granted to the acquired high-
tech firms on the M&A performance. Group & Organization Management,
p.1059601117703267.

Business Strategy 9
Zollo, M. and Singh, H., 2004. Deliberate learning in corporate acquisitions: post‐acquisition
strategies and integration capability in US bank mergers. Strategic management journal, 25(13),
pp.1233-1256.