There are three major theories of Mergers & Acquisitions:

1. Synergy or Efficiency:
2. Hubris:
3. Agency:
May you kindly explain each theories

1 answer

1. Synergy or Efficiency: This theory suggests that mergers and acquisitions are driven by the desire to create synergy between two companies, which results in increased efficiency and value creation. By combining resources, technology, or market presence, the merged entity can achieve cost savings, increased revenue, or improved operations that would not have been possible for the separate companies individually.

2. Hubris: This theory proposes that mergers and acquisitions can be driven by overconfidence or excessive pride on the part of company executives. In this case, management may pursue acquisitions to fulfill personal or ego-driven goals, rather than focusing on the strategic value or financial implications of the deal. This can lead to poor decision-making and value destruction for the companies involved.

3. Agency: The agency theory of mergers and acquisitions emphasizes the role of management and shareholders in decision-making related to corporate transactions. This theory suggests that managers may pursue acquisitions to serve their own interests, such as job security, power, or compensation, rather than maximizing shareholder value. Shareholders may also have differing goals or incentives from management, leading to potential conflicts of interest in the decision-making process.