Here are some reasons to merge.
1. Rapid Growth
Nicholas Sheumack explains that a merger increases the value of both companies. A merged company increases in value and can provide better goods and services.
This type of growth is the main reason companies merge.
2. Increased Production and Lower Costs
Increased production and lower costs, also known as economies of scale, are other benefits of a merger. The larger a company is, the more it can produce and save money.
Also, the cost per unit is lower. That’s because a larger company has a greater assortment of goods and can spread production costs further.
3. Diversified Products
A company that sells a limited amount of products may want a more diverse line. That’s where a merger comes in. Two companies coming together can offer a wider range of goods to their customers.
Mergers are also desirable for companies wanting to reach other geographical areas. It’s a great way to find customers in other parts of the country or world without having to start over.
4. For Tax Purposes
Companies will sometimes merge with other companies in an area where the tax rates are more favorable. Also, a company will take over another business that is operating at a loss for a tax subsidy.
5. To Grab Talented Workers
Sometimes it’s hard to find workers who have a specific skill set your company needs. In such situations, you may want to merge with a company that has those workers.
6. A Greater Market Share
If a company wants to control more of the market, it may merge with several smaller companies. That way, it will corner more of that market.
7. To Reach a More Diversified Group of Customers
Facebook wanted to reach a younger market, so it acquired Instagram and Whatsapp. A company may want to merge with another company in order to reach a group of customers it wouldn’t be able to sell to otherwise.
8. Vertical Integration
Vertical integration is merging or acquiring companies that are on a company’s supply chain. A cereal company may buy wheat producers, for example. A soda pop company may merge with a bottling plant.
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Vertical integration has a number of benefits, including keeping costs low and establishing greater independence.
A company that owns its suppliers won’t be dependent on them any longer. Knowing how suppliers produce the goods a company needs also makes it more marketable. Plus, it can also lower production costs.
Before you consider a merger, be aware that there are disadvantages as well. The people within the two companies might not mesh as well as you hoped, and you might find that costs are higher rather than lower.
You may have to lay off some people, and consumers might not be pleased with your merger. If you can overcome these challenges, however, your merger might mean explosive growth and profit.
Image Credit: reasons companies want to merge by envato.com
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