Approaches to Defining Motives in Mergers and Acquisitions

About the author:

Denis A. Buyvolov, Postgraduate Student, Senior Teacher, Department of World Economy and International Business, University of Tyumen; denbstudying@gmail.com

Abstract:

In recent years, the Russian economy has faced a number of difficulties, caused by a sharp decline in oil prices and the implementation of sanctions by the USA and the European countries. Together, these factors have led to a decline of the Russian ruble, which in turn led to imbalances in the Russian economy. In such situation, the companies, which have either geographic diversification of their business or good vertical integration, have found themselves in a beneficial situation. These both advantages can be obtained either by developing from internal resources or by acquiring other companies.

This article aims 1) to examine the main motives for mergers and acquisitions, as well as the approaches to determining these motives in foreign literature, and 2) to identify the main reasons for such low activity of mergers and acquisitions in the Russian Federation. Based on the results of this study, the author draws the following conclusions. First, most authors identify the growth of a company and its synergy as the main motives. Secondly, with regard to operational synergy, almost all authors positively assess this motive for making deals; yet, in relation to the financial synergy, everything is rather unambiguous and depends on the efficiency of the market. Thirdly, the motive of diversification also raises a number of doubts. In addition to the conglomerate discounts, when assessing companies, there is a risk of ineffective management. Fourth, a number of authors question the economic basis of certain motives. For example, many companies acquire companies with low P/E ratios, which enables them to raise their earnings per share artificially. The Russian market of “mergers and acquisitions” is currently poorly developed. To overcome this situation, Russian companies need to learn from the experience of foreign companies, which are developing quite successfully through mergers and acquisitions.

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