Acquisition can be an exciting tool for growing your company, but before pursuing a deal, it is important to ask, “What outcome do you hope to achieve from M&A that you would not realize otherwise?” There are a variety of reasons to acquire and although each company’s situation is different, most deals fall under one of these common reasons:
Top Line Growth – This is the most common reason for acquisition, often — but not always — in response to a declining market, or a slippage in market share.
Follow Customers – Here, you are expanding on your existing customer base to achieve greater product breadth or deeper market reach
Leverage Technologies – Acquisition can be fastest and most-effective way to add significant technologies you are lacking.
Consolidation – Purchasing a direct competitor can provide economies of scale and cost reduction, but may not change your overall strategic position.
Stabilize Financials – Here, you may want to leverage your balance sheet or incorporate a higher margin business.
Expand Customer Base – You may acquire a company to simply buy a customer portfolio, or to accelerate your expansion into new markets
Defensive Positioning – You may acquire a company simply to prevent a competitor from owning it, so that you can protect your current and future market position.
Even after considering the above, there are still numerous other benefits to using acquisitions to grow your business. Consider the following additional benefits of mergers and acquisitions.
· Access to a wide talent
It is no secret that there are shortages of workers in certain industries, such as engineering, construction, and programming. For this, it is very challenging for these industries to find new, trained, and talented workers to fill vacant positions. This makes a merger and acquisition a better option since it retains previous employees. If one of the companies did not have access to extensively trained, skilled, and talented employees, it will now be easy to access them.
Mergers and acquisition firms can substantially benefit from economies of scale. It could be in the form of lower unit costs, facilitated by lower fixed costs. For instance, there may be no need to have several stores open, particularly if they are closer to each other. Such companies may also benefit from efficiencies they can achieve.
· A bigger market share
Of course, all businesses want to acquire a bigger market share. But this can be sometimes quite difficult to achieve, especially if a business is still at its initial stages and operating under a low budget. This is where mergers and acquisitions come in. Once the two companies amalgamate, they will become larger and expand their market share. M&A advisory services can become handy if you are considering mergers and acquisitions to acquire a bigger share market.
· Tax advantages
There are plenty of tax advantages brought by mergers and acquisitions. For starters, companies with cash on hand can choose to assimilate rather than issuing dividends. Dividends are taxable while increasing shareholders’ value isn’t.
· Reduced risk
Mergers and acquisitions tend to allow a company to diversify. Since mergers and acquisition firms have more streams of revenue, they are able to spread risks across those revenues rather than having to focus on one stream of revenue.
· Competitive Edge in the Market
Mergers and acquisitions mean greater financial strength for both companies involved in the transaction. Having greater economic power can lead to higher market share, more influence over customers, and reduced competitive threat. In most cases, bigger companies are harder to compete against.
A Raoul Nembhard Ltd
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