Mergers and acquisitions transactions are after all business transactions that are geared towards enhancing the operational and financial efficiency of companies concerned, and consequently services offered to consumers. Mergers and acquisitions basically take place when two or more independent companies combine their businesses. The process by which a merger and acquisition takes place can either be through purchasing/leasing of shares or assets or any other form of combination that might be deemed appropriate. In an ideal market economy these types of transactions are encouraged as they are deemed to bring about efficiencies for the businesses, which should ideally translate into better service offerings for the consumers. However, we do not live in an ideal world and merger regulation is thus necessary to ensure that markets function optimally.
The regulation of mergers and acquisitions is thus an attempt to prevent the development of market structures that may enhance the ability of firms to abuse their market power, to the detriment of consumers. Take for instance a merger of businesses operating in the same market as actual competitors - horizontal mergers. In such an instance, the coming together of these businesses will result in a removal of an effective competitor in that market in which they operate.This may give rise to serious competition concerns because the removal of a competitor and thus the reduction of competitors in the market increases the market share of the new merged company and market concentration, resulting in a reduction of customer choice. In the absence of any form of regulatory mechanisms that ensure that the new merged company does not abuse its increased market power, such a transaction may have negative consequences on consumer welfare and the economy. In addition, in a market where there are already few players (what economists call oligopoly) any further reduction in the number of players on account of the merger may facilitate the ability of the few remaining firms to collude - again to the detriment of the consumer. As a result, competition authorities are usually concerned that mergers of this nature will lead to a decline in service levels and a rise in prices, often referred to as co-ordinated effects of a merger.
