7 Benefits Of Acquisitions And Mergers

An acquisition is when a company purchases another company, while a merger is when two companies combine together to create a new one. When a company is being purchased by another, it can keep operating under its name and retain its legal structure. When two companies merge, however, one of them will stop existing as it will become a part of the first one.

These two processes are different, but they usually have the same type of purpose: to stimulate the growth of a business and to help it achieve its goals. The process begins by consulting with professional merger and acquisition services to come up with an action plan. Afterward, you will approach the business that you want to acquire or merge with.

Are you wondering if an acquisition or a merger could be a good idea for your business? Take a look at these benefits of acquisitions and mergers.

1. Achieve synergy

Synergy is when two different businesses combine together to become a better, stronger business. After they have merged, they will be able to offer more diverse services or products, reach out to more people, and make more sales.

Imagine two companies that offer two different products but in the same niche. One of these companies could have a strong marketing department, while the other could be better at reducing their manufacturing costs without sacrificing quality. When they achieve synergy by completing a merger, they will benefit from each other’s strengths and become more powerful.

2. Allow a company to make economies of scale

Big businesses often have advantages that a small business doesn’t have. For example, the larger a business is, the easier it is for them to save money on production costs. This is why small companies often have to charge more than large ones for a similar product.

With an acquisition or a merger, a company can easily grow enough to make economies of scale. They can access more capital, reduce their production costs, and make better deals with suppliers or distributors. This allows them to offer less expensive products to their customers.

3. Gain a larger market share

Many businesses turn to mergers or acquisitions so they can stimulate their growth, allowing you to gain a larger market share. By buying the business of a competitor, for example, they secure their share of the market.

Let’s say that two companies are selling fair-trade chocolate in the same area. The first company could be interested in buying the second one, and they will benefit from this transaction in different ways. They will eliminate a competitor, and they will get to sell chocolate to both customer bases instead of only their own.

4. Can be part of a strategy to enter a new industry

There are other situations where a business might want to buy another one as a strategy, allowing them to get started in a new industry. By buying a company that already produces and sells what you would like to produce and sell, you can start making sales in that industry in a timely manner, and with low risks.

For example, one of the companies that sell fair trade chocolate might decide to expand its offerings. In this case, they could buy a small company that specializes in selling wholesome snacks.

5. Accelerate the process of entering a new market

Acquiring another company or merging with them can also be a quick way, for a company, to enter a new market. Let’s pretend that a Canadian company wants to do business in the United States. It could research the market and look for ways to appeal to American customers and to build their reputation from the ground up.

Or it could acquire a small American business that sells the same type of product. This way, they instantly benefit from their reputation, their customer base, and their knowledge of the market.

6. Allow a company to become more competitive

Bigger companies are more competitive than smaller ones, mostly because they can easily benefit from economies of scale, as we have already mentioned. If two small companies decide to merge together, they are joining their forces so they can reduce their production costs.

Plus, the companies gain a larger market share. Purchasing a successful company is also a way to quickly become more competitive in the market.

7. Can generate value for both companies

Acquisitions and mergers can benefit both companies involved and not only the one who is buying the other one. If a company is struggling with some financial issues, for example, being purchased by a more financially stable company can allow them to keep operating and to solve its problems.

Plus, joining forces can allow both companies to enjoy more interesting tax benefits, which is another valuable advantage that can’t be overlooked. If you are contemplating an acquisition or a merger, your company and the other company should both be able to benefit from the transaction.