Mergers & Acquisitions (Big focus on AECOM acquisition of URS) Literature review

Mergers & Acquisitions (Big focus on AECOM acquisition of URS) - Literature review Example Due to the wake of economic reforms, entities are viewing it prudent to restructure their operations around their principal business activities strategically through acquisition because of their burgeoning exposure to competition from both domestic and international arena. According to the existing literature, companies engage in mergers and acquisitions for myriad reasons. Some of these motives are view as being good since they are aimed at maximizing the shareholders wealth while others merge or acquire others for questionable reasons (Ferris & Petitt 2013). In essence, companies should pursue mergers and acquisitions only if such actions create value. In other words, companies should merge if they are working as a single unit as opposed to working individually offers a greater value. Ferris and Petitt’s (2013) study established that synergies take three forms namely financial, managerial and operating synergies. Financial synergies arise from lower financing cost because big companies have access to a broader and cheaper pool of funds compared to small companies (Malik et al., 2014, p. 528; Koi-Akrofi, 2014, p. 1812). When companies that carry out unrelated businesses merge, there is the reduction in risk that makes them increase their debt capacity and enable them to lower their before-tax financing cost. In this context, there is also the aspect of improved financing in the sense that companies facing financial problems may be forced to look for others that are financially stable to acquire them instead of going out of busines s or taking bankruptcy. The merger causes the firm to expand which makes it easily get access to debt and equity financing which was initially beyond its reach. According to an analysis done by the New York University Stern School of Business (2015) and Malik et al. (2014, p. 528) mergers