Globally, size has become a recipe for success. An enhanced capital-base, all things being equal, is expected to confer competitive edge on a bank. It would enable the bank acquire relevant technology, engage high quality personnel and absorb shock. It would also position the bank to offer better and value-added services while increasing its earning capacity. Furthermore, consolidation increases the potential of banks to compete effectively at the national, regional and global levels. Revenue Enhancement: One of the important reasons regarding mergers and acquisitions is the ability of combined firms to earn more revenue than two separate firms. Improved revenue may come from marketing gains, strategic benefits and market power. For instance, instead of advertising separately, the consolidated firm pulls its resources together to market the products and services of the firm, thereby reducing the unit cost of production. Tax Gains: This may be a powerful incentive for mergers and acquisition. The increased size of a firm resulting from consolidation enables it enjoy tax gains resulting from the use of tax losses which would have resulted from separate net operating losses, the use of unused debt capacity and the use of surplus funds which the individual small companies were not able to invest. However, having outlined the advantages of consolidation, it is important to note that in spite of the points adduced in favor of economies of scale as an advantage of consolidation, banking and finance literature have amply documented the fact that diseconomies of scale are possible (An Eagle Eye View of Mergers and Acquisitions: A recipe for venture expansion â Abdul waheed Dauda)
Last date updated on April, 2024
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