Home / Financial Services/ Mergers and acquisitions are not the same!

Mergers and acquisitions are not the same!


Comments / {{hitsCtrl.values.hits}} Views / Monday, 5 May 2014 00:00


The misinterpretation of the HNB MD’s comment at the MTI Banking Forum demonstrates the widespread confusion regards mergers and acquisitions, which are two distinct approaches of inorganic growth for a business.   Acquisition, as the name implies, is when a business is bought over by another business – such as a bank acquiring a finance company. Having acquired it, the acquirer has the option of treating it as a subsidiary (and letting it operate as it is) or actively integrating the two organisational structures – which is referred to as a merger. Purely as an example, if Malaysian Airlines (a legacy airline) decide to acquire Air Asia (a budget airline), it may not be commercially prudent to ‘merge’ the two organisational structures – because they have very different cost structures, operating business models, staff competencies and organisational cultures. Of course, there could be synergies in areas like aircraft buying and technology, where the synergies could apply. Similarly, a bank and a finance company would have two very different operating models. Finance companies would have a low cost distribution model, an aggressive outdoor sales channel, ability to reach and serve the ‘un-bankable’ customers, developing small ticket products and swift loan approval mechanism. Therefore, merging all these functions with a much higher fixed cost bank structures may not be commercially prudent. However, there could areas like technology and risk management, where the finance companies could benefit from the bank’s strengths. So, the next time we hear “Don’t merge”, let’s dig a little deeper and not jump the gun!

Share This Article


DISCLAIMER:

1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.

COMMENTS

Today's Columnists

In the desert of Tamil films, actor Sivaji Ganesan was an oasis

Saturday, 22 September 2018

‘Indian Film,’ first published in 1963 and co-authored by former Columbia University Professor Erik Barnouw and his student Dr. Subrahmanyam Krishnaswamy, is considered a seminal study of the evolution and growth of Indian cinema. The book is cit


Imran may turn blind eye to blasphemy law and persecution of Ahmadiyyas

Saturday, 22 September 2018

There are clear signs that Pakistan’s freshly minted Prime Minister, Imran Khan, will make a sincere effort to reduce corruption and maladministration in the domestic sphere. In foreign affairs he is likely to make a brave attempt to mend fences wi


The rate of exchange, capital flight and the Central Bank

Friday, 21 September 2018

The Central Bank (CBSL) exists for the sole purpose of price stability. Its controls on the financial system and monetary policy exist to maintain price stability. As put forth many times by the Governor, the failing of the CBSL to control inflation


Red flag over the Sri Lankan Navy

Friday, 21 September 2018

Shocking story Rusiripala, a former banker in Sri Lanka, who has taken to writing in Daily FT, is perturbed by the red flag I have raised (Daily FT article 18 September) over the shocking charge that our Navy had operated a ransom gang that had abduc


Columnists More