Long-Term Financial Management Decisions
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In order to make the correct decision in business there has to be alternatives, that is part of the decision making process. With more alternatives there are always better results. It all depends on the goal that is trying to be achieved. Purchasing other corporations helps acquire integration. Whether it is vertical or it is horizontal. In order to acquire vertical integration a company has to supply the firm with raw materials or resources for their services. In order to acquire horizontal integration a company has to produce similar services as the firm. This means that acquisitions help reduce costs, make operations more efficient, enter a new product line, and increase revenues. All this is done by having more control over the market.
Like I stated before it is sometimes better to have alternatives, now they might be better or they might not which is why the decision has to fit the objective. It is possible that a company may pay a little too much but that could be better for the long-term or the short-term. There are always those factors that arise when acquiring the company. It may depend on their current revenues, future growth, brand name premiums, assets, or even current market trends, and etc. When analyzing the price it just might not look as bad as it does. In the long-run, an acquisition that is accurately made would be a gain for the stockholders.
Reference:
Gitman, L. J. (2006). Principles of Managerial Finance (11th Ed.). Boston, MA: Pearson Addison Wesley.