Mergers and Acquisition Transactions

Introduction
Financial management in corporate finance involves the identification of credible sources of funds. Additionally, it includes promoting the value of the shareholders as a responsibility tasked to the managers of financial institutions. According to Reddy, Agrawal, and Nangia (2013), the term closely associates with investment banking involving the performance of financial analysis to determine the needs of the firm and the necessary capital capable of efficiently meeting the identified needs. It is within the responsibility of the managers to identify the investment projects favoring the growth and expansion of the firms. Mergers and acquisition provide the typical example of development projects enabling the unification of companies to share profits and liabilities. Therefore, there is the need to examine the advantages and disadvantages of mergers and acquisition by providing an example of a successful merger.
Advantages of Mergers and Acquisitions
According to Reddy et al. (2013), economic crisis strains the attaining of maximum market value to companies and financial institutions. With the economic challenges, use of mergers and acquisition provides an efficient solution to avoiding inquiring of massive losses. The strategy presents numerous advantages, especially to smaller firms entering into an acquisition with larger enterprises. A significant advantage is an increase in shareholder value, which reciprocates in long term profits to the businesses and sustainability even during financial constraints.

Increased value increases the returns and generates cost-effective innovations of the scale of the economy through sharing of available resources. Additionally, the plan provides a greater buying power to the merged company increasing their competitive advantage.
Based on Schmidt (2015), unification of enterprises enhances the tax returns and revenue generation. Merging allows the company to improve its market share allowing it to increase its debt capacity. The increase in debt capacity reciprocates with an increase in cash flow within the business and a reduction in per capital allowing the company to procure massive investments. Regarding an acquisition of a smaller company by a larger firm, following losses in the smaller business, the acquiring firm is in a position to minimize its taxes by using the net-operating losses of their merging partner. Consequently, through the union, the company can accumulate its deflation tariff-reducing the taxes.
A plausible advantage of entering a merger, in particular for a smaller business facing operation difficulties, is the ability to overcome such challenges and continue to profit through owing of shares. Economic recessions in the US threaten the existence of smaller business with limited capital to either innovate or remain operational during times of recession and depression. Forming mergers for these firms provides an alternative solution in mitigating risks.
A significant application of the method occurs in instances where there is a need to introduce a new product in the market. The new industry may prefer to merge with an already existing business that is already enjoying profits. The advantage is the use of a marketable name and company to promote the sale of the new products. Additionally, the method contributes to an enterprise exploring a new market with numerous possibilities, use of and application of new technologies, lowering the expenditure on production (especially for smaller firms and in the quest to increase profits and Earning per Share (EPS)).
The case of Exxon and Mobil in 1999 leading to ExxonMobil becoming the largest oil company in the world provides a typical example of a successful merger. Through the merger, the company enjoys the leading position in the oil business and massive earning through its dominating the market.
Disadvantages of Mergers and Acquisitions
According to Lebedev, Peng, Xie, and Stevens (2015), the process of entering into a merger or acquisition presents numerous challenges threatening the success of the outcome. With the establishment of the unification, loss of employment occurs in effect to reduce the cost of production with an increased population of employees. Often, in the case of an acquisition of a large and smaller firm, the smaller company cuts down on its workforce retaining a minimum population of expertise.
Problems with integration within the organization may occur resulting in friction of workers and negative intercompetition, which together affect the output and motivation of the workers. Additionally, the process leads to remodeling of the workflow, objectives and organization structuring leading to changes in salaries and positions. Consequently, these changes promote dissatisfaction among the employees. The setting of prices for the unification lacks standardization, which could result in overpricing limiting future relations of the company.
About the impacts or the union to the target customers, the change from having a wider choice of products to a single product promotes a higher pricing of the goods. As a result, there could be a significant decline in the market and demand for the product. Market saturation is a likely event, particularly when there is no product innovation and customer base remains stagnant. It is imperative to consider the increase in debt in the original company following an acquisition of a financially challenged firm. Debts threaten the profitability and growth of the business.
Conclusion
Investment banking provides information on the possible expansion plans likely to improve the outcome of the business. Mergers and acquisition are among the standard growth methods although the business of entering into mergers and acquisitions proves quite challenging and unpredictable. The disadvantages of the union focus more on the employees and the consumers than the company itself. The transition into another company promotes disagreement among the employees and loss of employment. Comparatively, the advantages profit the business as a whole, especially in providing synergy to the enterprise. Strategic planning improves the possibilities of success with an example of ExxonMobil dominating the oil market through utilizing the advantages of mergers.

References
Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50(4), 651- 662.
Reddy, K. S., Agrawal, R., Nangia, V. K. (2013). Reengineering, crafting and comparing business valuation models- the advisory exemplar. International Journal of Commerce and Management 23(3), 216-241.
Schmidt, B. (2015). Cost and benefits of friendly boards during mergers and acquisitions. Journal of Financial Economics, 117(2), 424-447.