Reason As To Why Companies Merge

 

In order to keep up with the current economy, businesses make a number of changes to and within their organisation. One major change companies make is merging with another firm in either the same field or trade or in a completely unrelated field. Before merging, shareholders can talk to business restructuring consultants to know about the advantages and disadvantages on mergers and acquisitions. There are number of reasons as to why firms merge;

Diversification

If two companies merge in two unrelated fields it is to diversify in order to decrease the impact of that specific industry on their profitability. Diversification gives an edge to these companies that their competitors may not have due to the localisation of their consumer market.

Synergy

Synergy is the basic concept that states that two companies are better than one. Business activities are combined thus increasing production and in turn can decrease the operating costs of the new merged firm.

Growth and Survival

During times of recession or financial crisis, some companies opt for merging in order to ensure the survival of the company. Mergers like this may be hostile. For example if company A isn’t doing well in terms of productivity, there is a possibility that it can be forcefully taken over by another firm due to its instability in the current situation. Voluntary mergers and acquisitions give the opportunity for the company’s market share to grow without them having to do major changes in their production line.

Elimination of competitors

Most companies merge to eliminate competition in their market so that they can acquire a larger marker share which will increase the profitability of the company. One disadvantage of this is that when acquiring a new firm, the acquirer has to pay a higher premium to attract the board of directors of said company accept the merger.

After the merger has taken place, many changes take place for the new firm to rise. Changes in location and workforce are the most common. The new company will also have to get their accounts in order as it is like starting a new business but with pre laid foundation. Bookkeeping services will help keep the finances in track and will save time so the firm can devote their resources to more vital matters.

Mergers are not always successful and timing is of utmost importance too. Before acquiring or taking over another firm, ample research must be conducted to identify is this is the best possible decision for your company in term of production, sales and work force.