A recent article in The Economist comments that most mergers and acquisitions (M&A) in a crisis situation such as the present can be defined as 'internal cleaning', which implies the consolidation of a pre-existing relationship. The explanation it offers consists of the buyer being very familiar with the firm that is acquired, which minimises risks. What?s more, owing to low share prices, the minority shareholders are generally willing to sell their stakes.
Furthermore, another article in the same issue mentions a UBS study which suggests that one third of the M&A transactions in America this year failed before completion. Furthermore, the value of the M&A that are completed is falling: $2.8 trillion on a world scale in 2008, which is down 27% on 2007.
However, The Economist also mentions certain strategic M&A transactions, such as Oracle's purchase of Sun Microsystems on 20 April this year. Indeed, it somewhat surprisingly states that the economic crisis means that weaker businesses are now more willing to accept offers than in times of prosperity, since they prefer 'to go to bed with an attractive bidder rather than face bankruptcy on their own'.
Accordingly, the suitability of these merger and acquisitions comprises a combination of internal factors related to the state of the buyer company and external factors related to the market.
Are the profits and costs of this transaction clear? This is one of the scenarios on which this ENTER note analyses Oracle's purchase of Sun Microsystems, as well as the importance of the transaction in view of the direction being taken by the information technologies industry.
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