What is the benefit of merger and acquisition?

There are many good reasons for growing your business through an acquisition or merger. These include:

1.     Obtaining quality staff or additional skills, knowledge of your industry or sector and other business intelligence. For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own. Ideally, the business you choose should have systems that complement your own and that will adapt to running a larger business.

2.     Accessing funds or valuable assets for new development. Better production or distribution facilities are often less expensive to buy than to build. Look for target businesses that are only marginally profitable and have large unused capacity which can be bought at a small premium to net asset value.

3.     Your business underperforming. For example, if you are struggling with regional or national growth it may well be less expensive to buy an existing business than to expand internally.

4.     Accessing a wider customer base and increasing your market share. Your target business may have distribution channels and systems you can use for your own offers.

5.     Diversification of the products, services and long-term prospects of your business. A target business may be able to offer you products or services which you can sell through your own distribution channels.

6.     Reducing your costs and overheads through shared marketing budgets, increased purchasing power and lower costs.

7.     Reducing competition. Buying up new intellectual property, products or services may be cheaper than developing these yourself.

8.     Organic growth, i.e. the existing business plan for growth, needs to be accelerated. Businesses in the same sector or location can combine resources to reduce costs, eliminate duplicated facilities or departments and increase revenue.

A merger occurs when one firm assumes all the assets and all the liabilities of another. The acquiring firm retains its identity, while the acquired firm ceases to exist. 

Benefits of Mergers and Acquisitions:

• Entering a new market by penetrating new geographic regions with better production or distribution facilities.
• Diversification of the products and services by obtaining proprietary rights to products or services of acquired firm.
• Achieving administrative benefits by eliminating inefficiencies through obtaining quality staff and providing managers with new opportunities for career growth and advancement.
• Increasing market share by purchasing competitors and having access to more customers.
• Lowering cost of operation and production by creating economies of scale.
• Gaining higher competitiveness by combining complementary resources.
• Obtaining industry know-how and positioning by acquiring additional skills, knowledge of industry and other business intelligence of new staff.
• Enjoying financial leverage because of better negotiation power due to increase in size of business
• Improving profitability and Earnings per Share -EPS by increasing shareholders’ value.

If aligned to organization's strategy and effectively managed, M&As provides the following:

- Increase production capacity

- Aquire market share

- Strengthen your competitivness

- Strengthen your control over targeted markets

- Support your growth

- Support your profiability

Merger and acquisition has become the most prominent process in the corporate world. The key factor contributing to the explosion of this innovative form of restructuring is the massive number of advantages it offers to the business world.

Following are some of the known advantages of merger and acquisition:

• The very first advantage of M&A is synergy that offers a surplus power that enables enhanced performance and cost efficiency. When two or more companies get together and are supported by each other, the resulting business is sure to gain tremendous profit in terms of financial gains and work performance.
• Cost efficiency is another beneficial aspect of merger and acquisition. This is because any kind of merger actually improves the purchasing power as there is more negotiation with bulk orders. Apart from that staff reduction also helps a great deal in cutting cost and increasing profit margins of the company. Apart from this increase in volume of production results in reduced cost of production per unit that eventually leads to raised economies of scale.
• With a merger it is easy to maintain the competitive edge because there are many issues and strategies that can be well understood and acquired by combining the resources and talents of two or more companies.
• A combination of two companies or two businesses certainly enhances and strengthens the business network by improving market reach. This offers new sales opportunities and new areas to explore the possibility of their business.
• With all these benefits, a merger and acquisition deal increases the market power of the company which in turn limits the severity of the tough market competition. This enables the merged firm to take advantage of hi-tech technological advancement against obsolescence and price wars.

To The Point

Increase In Capital, Assets, Business And More Opportunities in the market.