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Risk Management in Mergers and Acquisitions Quiz

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Risk Management in Mergers and Acquisitions Quiz

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Questions and Answers

What is the main difference between a merger and an acquisition?

In a merger, both firms dissolve, and a new entity is formed, while in an acquisition, both firms continue to exist separately.

In a merger, both firms retain their individual identities, while in an acquisition, one firm absorbs the other.

In a merger, two firms are combined into a new entity, while in an acquisition, one firm takes over another. (correct)

In a merger, one firm takes over another completely, while in an acquisition, two firms come together to form a new entity.

What type of merger involves two firms that are merged along the value-chain?

Vertical merger (correct)

Horizontal merger

Conglomerate merger

Parallel merger

Why do companies in mature industries with poor growth prospects often engage in conglomerate mergers?

To reduce costs

To eliminate competition

To increase market share

To smooth out wide fluctuations in earnings and provide consistent long-term growth (correct)

What is the primary motive for mergers and acquisitions related to 'Operating Synergy'?

Diversification of risk Signup and view all the answers

Which term best describes mergers where two firms are in completely different industries and merge together?

Conglomerate merger Signup and view all the answers

What is the main reason companies resort to mergers and acquisitions according to the text?

To diversify risk Signup and view all the answers

What is the main difference between a merger and an acquisition?

In a merger, the two companies combine to form a new entity, whereas in an acquisition, one company purchases another. Signup and view all the answers

What characterizes an acquisition as hostile?

The target company resists the acquisition attempt by another company. Signup and view all the answers

How are assets and liabilities treated in a merger?

They are absorbed by the buying firm in their entirety. Signup and view all the answers

Which statement best describes a takeover in an acquisition?

It always involves the acquisition of all voting shares of the target company. Signup and view all the answers

In what way does a merger differ from an acquisition?

In a merger, companies come together to form a new entity, while in an acquisition, one company takes control of another. Signup and view all the answers

What makes an acquisition different from both mergers and takeovers?

An acquisition typically results in one company having control over another. Signup and view all the answers

Study Notes

Mergers and Acquisitions

Acquisition refers to a purchase of a smaller firm by a larger one.
Merger and acquisition are often used as synonymous terms, but there is a subtle difference between the two concepts.

Difference between Mergers and Acquisitions

Merger is a friendly and ethical style, where two companies merge and a new entity is formed, and the status of the merged companies disappears.
Acquisition is a takeover of another company, where the acquired company is bound by the rules and controls of the acquiring company.

Types of Mergers and Acquisitions

Horizontal: Two firms merge across similar products or services, often used to increase market share.
Vertical: Two firms merge along the value-chain, often used to gain a competitive advantage.
Conglomerate: Two firms in completely different industries merge, often used to smooth out wide fluctuations in earnings and provide more consistency in long-term growth.

Reasons for Mergers in Small and Medium Enterprises

Growth
Operating Synergy (V(A) + V(B) < V(AB))
Financial cost savings
Diversification of risk
Empire building

The Merger and Acquisition Process

Preliminary discussions
Due diligence
Negotiation and agreement
Documentation and closing

Risk Management in Mergers and Acquisitions

Identification of risks
Assessment of risks
Mitigation of risks
Monitoring and review of risks

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Description

Test your knowledge on risk management in mergers and acquisitions with this quiz covering topics like definitions, types, reasons, advantages, disadvantages, and the merger & acquisition process.