Business

Mergers occur when two companies join forces or come together to form one company. An acquisition on the other hand occurs when one company takes over or purchases another company and integrates it in its operations (Weston  Weaver, 2004). In a merger, companies coming together have equal rights and ownership to the newly formed company. Mergers result in formation of a new company. However, in acquisition, the acquiring company has the sole ownership over the company being acquired and does not necessarily result in changing of companys name (Rivers, 2007).
Advantages and disadvantages of mergers and acquisition

Advantages

Economics of scale
Economies of scale lead to a reduction of unit costs and also have the synergy effect. Mergers and acquisition also have synergy effects to an organisation. Two companies are better than one when it comes to competitive force, decision making, and in terms of skills and experience (William, 2008).

Greater market access
Merged companies have a wider market base, hence increased competitive advantage. This occurs if the integration is horizontal resulting from alliances of similar companies within an industry. This leads to emergence of an informal monopoly thus giving companies more power over market prices and reduces price wars (Zhang, n. d).

Diversification
Unrelated Mergers and acquisitions helps a company diversify the risks associated with dealing with one line of product. This gives some assurance to an entity of continuity of operations even when one sector is exposed to economic difficulties or recession period. Mergers and acquisitions helps in spreading risks for a company.

Reduction of competition
Mergers and acquisitions helps in reducing competition as rival companies agree to work together as allies. Usually, companies form Mergers and acquisitions occur among rival companies and at times they may be formed to help overcome competition from bigger companies.

Growth prospect
Company integration leads to formation of wider financial base and it becomes easier for an entity to raise capital for expansion purposes. Also, integration leads in the widening of skills and expertise base as well as specialist department in an entity. All these factors are important for growth of an entity and this can be actualised via mergers and acquisitions (William, 2008).

Disadvantages

Diseconomies of scale
Mergers and acquisitions usually result in formation of large companiesorganisations and this may lead to diseconomies of scale and an increase in unit costs.

Culture clash
Mergers and acquisitions entail combining the operations of two previously different companies with their own unique culture and management practises. Bringing such two companies together usually lead to culture clashes leading to a reduction in the overall effectiveness of the resultant or integrated entity (Stahl  Mendenhall, 2005).

Redundancy of workers
Usually, following a merger or acquisition, the management of the two companies are absorbed to the newly formed entity. This may render some employees, in most cases the managers redundant, a factor that may have negative impact on their motivation.

Conflict of objectives
Conflict of objectives may arise from the integrated businesses making decision process to be long and complicated. This may lead to disruptions in the normal running of operations thus reducing effectiveness and efficiency of an entity (Sherman  Hart, 2006).

While some of the strategic alliances are very successful, studies today reveal that most of the mergers and acquisitions fail. A study conducted in the year 1997 by mercer management (outlined in Coyle, 2000) came to a conclusion that an alarming 48 of mergers under-perform their industry after three years. A recent study by business weekly showed that in about 61 of all the acquisitions, buyers destroyed their own shareholders wealth (Henry, 2002). The Mercedes Chrysler merger which took place in the year 1998 is an example of a failed merger. According to Zetsche, the CEO of Mercedes, he attributes the failure for customer preferences of the two companies that were more diverse and fragmented. Culture and objective clash and rushed process during the integration process were the main reason for this failure and other many failures of mergers and acquisitions. Careful planning and execution of mergers however can help in reducing the number of their failures as was the case relating to GlaxoSmithKline merger or GSK (Stahl  Mendenhall, 2005).