Mergers and Large Acquisitions

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MERGERS AND LARGE ACQUISITIONS 3

Mergersand Large Acquisitions

Justlike innovation, mergers and large acquisitions are critical for theshort and long-term sustainability of firms. This is based on thepremise that, customers have forced the markets to offer more forless, therefore, aspects such as economies of scales always comes inhandy for the companies in reducing operational costs (Bena &amp Li,2014). However, it is important to note that, although mergers andlarge acquisitions results to cost synergies and revenue synergies,majority of well established companies merge in order to enjoy thelatter. This is due to the fact, after the mergers, firms are able tohave a large customer base as well as reduced competition (Moss,2013). For instance, the merger of American Airlines and US Airwaysin 2013, two of the largest carriers in the US market, combined atleast 100,000 employees who were serving 187 million customersannually. Consequently, in the 1Q of 2014, the two enjoyed a 5.6%increase in the operating revenue resulting from 5% growth in cargoand passenger segment as well as 10% growth in various revenuesegments. This was realized amidst severe weather patterns leadingto cancellation of at least 34,000 flights across various parts ofthe world (Cederholm,2014).Therefore, although revenue and cost synergies may be the reason formergers and large acquisitions, the main driving force for most ofthe companies is to enjoy revenue synergies.

References

Bena,J., &amp Li, K. (2014). Corporate innovations and mergers andacquisitions. TheJournal of Finance,69(5),1923-1960.

Cederholm,T. (2014). Overview:American Airlines Group Inc. Market Realist.Available at http://marketrealist.com/2014/07/overview-american-airlines-group-inc/

Moss,L. (2013). Deliveringthe Benefits? Efficiencies and Airline Mergers.American Antitrust Institute.

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