Source: pexels.com

How Do Mergers and Acquisitions Help Companies Grow?

There are a number of ways in which mergers and acquisitions impact any company. From a business perspective, it leads to a significant increase in revenue if planned accordingly. While there is a lot of risk involved in proper planning can help make mergers and acquisitions a deal which gives good results.

To understand how mergers and acquisitions help the companies grow one also needs to understand the reason why they happen and what are the major causes behind their failure.

Why do Mergers and Acquisitions Happen?

Source: pexels.com

Growth

The primary reason for mergers and acquisitions is company growth. It is natural that when two associations merge, they are growing in size and are able to combine their resources. The increase in size of the company simulates organic growth which might not have been possible had the acquisition or merger not happened. Know more with Merger & Acquisition Growth Experts.

Tackling Competition

Growth can happen in multiple respects which also includes being above the competition. Typically when a merger or acquisition happens a bigger company is imbibing a smaller company within itself. The smaller company has gained enough popularity and praise in their work that they become the target of many industry leaders. There is an inherent competition in growing companies to expand their range of functions.

A simple way in which this can happen is through the acquisition of a smaller company and that too before the competitor has a chance to make an offer. Taking the chance away from the competition is also a means to grow because you are preventing the competition from having the same resources as you do.

Tax Reduction

Tax deduction is also a great reason to invest in a merger. It is not an overt reason that companies will accept. However, it is a significant loophole that allows a bigger company to reduce their tax payouts. In this process, the bigger company acquires a smaller organisation and then moves the taxed location to an overseas area which is related to the smaller entity.

The new geographical area is more often than not a lower tax jurisdiction. This means that even though the larger company has grown significantly in size with the acquisition it will not have to pay as much tax as it would have in its home country.

How Does M&A Help in Growth?

Source: pexels.com

There are numerous reasons why the merger of two companies will be a great way for them to grow. Here are some of them:

Expanding Markets

Expanding the market and reaching new customers is the most apparent reason behind merges with an overseas company. An official merger makes the smaller company provide to customer information and gives them a head start which would not have been possible if they were going to start from scratch. Networking and marketing becomes extremely easy when access to different customer demographics is already present.

Added Credibility

Legal association between the companies adds to the reputation of both of them. For instance, if a new marketplace is being entered into by the larger company, being associated with a trusted brand will be the best bet. This is because the local brand with a wide customer base will allow the newcomer to gain a strong footing and lead to financial growth by increasing customer trust.

Easy Diversification

Mergers and acquisitions allow for easy diversification of the product catalogue of both the companies. This means that both companies can use the new resources available to make sustainable solutions and increase revenue with reduced investment. Diversification also helps the companies cater to a broad customer demographic rather than a small group of people.

Increasing Innovation

In today’s world when technology and innovation comes first, mergers and acquisitions become all the more important. Big tech companies are investing in smaller organisations simply on the basis of innovation. This allows for the bigger company to expand their portfolio by introducing different technologies and innovative techniques that can further their business.

Takes Care of Competition

There is already significant competition in any industry so creating a domination over other competitors is a good approach. One of the ways in which a company can dominate the market is through a successful merger which increases the revenue and creates new customers.

What are Some Causes of Failures?

Source: pexels.com

There is no doubt about the growth potential of a company from an acquisition. However, if the process is not well thought out, there can be some riss. Here are some reasons why a merger may downhill:

Culture Clashes

As much as an overseas merger can give growth opportunities on the basis of market expansion and credibility, there is a significant drawback. Culture class is a big issue that can lead to the failure of a merger if not planned out thoroughly. Not being flexible with the business approach according to the geographical area is also a significant reason why big companies might not succeed in new markets.

Improper Valuation

Improper valuation of the company being acquired can also lead to the merger being a failure. Many times mergers happen for a variety of reasons that include overpowering the competition. In such a case a company may bid for more than the worth of the smaller organisation.

This makes the profit significantly less than the investment put into the merger. Other times, improper valuation happens when there are unrealistic expectations related to the performance of the organisation being acquired. If the smaller organisation fails to perform according to the expected plan it also leads to a drawback in the financial performance.

The Takeaway

The main idea behind a business is growth. For bigger companies, this happens on a large scale with a lot of capital involved. There are significant risks to mergers and acquisitions but they have unbound growth potential as well. If planned with enough foresight, both the companies involved in the merger can reach new heights in multiple locations by expanding their market and services.

About Courtney Corbett

Check Also

Business Social Media Account – Top 10 Don’ts

So you are a business owner and you use social media to enhance your business …