Mergers and Acquisitions

Read more about mergers and acquisitions in this section and answer the questions at the end. How could mergers or acquisitions benefit a company seeking new international markets?

Mergers and acquisitions allow for business synergy and cost savings. Synergy is the idea that a larger organization's combined value and overall performance would be greater than two separate companies. Synergy can also come about through cost savings or by combining operations to create more efficient processes.

Mergers and acquisitions can often reduce a company's spending on administrative staff, accounting, management, facilities, insurance, and other overhead costs by removing redundancy and duplicated functions.

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 that can be bought at a small premium-to-net-asset value.
  3. Your business is 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 that 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.