Research shows that only the strongest survive in the corporate world. That’s why companies compete with each other every day to stay on top. However, not all companies can be equally successful. Companies that are not so successful try to seize every opportunity that is given to them and continue in search of success. One of the biggest options involves business merger and acquisition. Read in the rest of the text why companies are considering mergers and acquisitions.
What is merger?
Merger is a financial transaction in which two companies merge. Their business continues, but the policy has changed significantly, because now the two companies represent one legal entity. However, this type of business combination can be divided into several different categories. There is a horizontal merger or merger of competitors. Vertical connection means connection along the same supply chain line. Then, we have merging market expansion which would mean offering comparable products in two different markets.
There is also the opposite business strategy used by companies aiming to do business in the same market while offering products that are complementary to each other. According to the Imaa Institute, specialized in mergers and acquisitions (M&A), there is also a conglomerate merger in which companies offer different products or services. The choice of merger depends solely on the motives and goals of both parties involved in the business.
Economic motives
Companies have different motives when it comes to business planning, but what they all have in common is the desire for higher profits. Behind that motive, companies enjoy cost savings and competitive advantages. Smaller companies usually cannot afford that, which means that larger economic volume is always better. When two companies merge, they increase the wealth of their shareholders.
The result is an increased value of the newly created business entity. Synergies encourage revenue generation, and the factors that lead to synergies are market expansion, diversification, etc. In addition to a larger economy, access to new technologies is provided.
Diversification
This is another reason why companies are embarking on a well-known merger strategy. In this way, companies enter new markets or offer new products and services. It is common for managers to take such a step in order to diversify the risks associated with the company’s operations.
Acquisition of new technology
Technological changes happen every day and they move the world we live in. As a result, the industry is constantly changing, and companies that cannot keep up with these changes do not survive. The reason is the lack of resources and space for progress.
Fortunately, there is a solution. One of the most popular options is to merge with another company that will give them new technologies and expertise. For example, Google bought a large number of AI startups and thus gained a number of opportunities in terms of technology. This will help them become even more influential in the coming years.
Conclusion:
So, there are many reasons why a company would acquire or merge with another company, and the main reason is business growth. In this way, the company has the opportunity to increase its market share, which will give it an advantage over the competition.