Businesses may use different strategies to ensure survivability, promote growth and meet financial goals, such as mergers and acquisitions (M&A). These arrangements can consolidate the assets of two or more companies to achieve a common business goal.
Through this tactic, a firm may buy another company, merge with it, secure some of its significant assets or take over the whole enterprise. It is a viable option for entrepreneurs seeking longevity or strengthening their presence within their industries.
Reasons for engaging in mergers and acquisitions
One reason to consider merging or acquiring another company is to get ahead of a competitor. If you are eyeing a firm with an attractive portfolio that complements your business, you could initiate a merger before a rival company makes a similar move.
Meanwhile, other companies use the M&A strategy to grow and expand. Instead of trying to scale organically, which can take years or even decades, they can streamline expansion by combining assets with another firm.
Another reason to consider M&A is for domination. More prominent corporations can acquire smaller businesses to dominate or maintain their position in the industry.
Additionally, a merger between two giant organizations may lessen the competition in a relevant sector, leading to a potential monopoly. Entrepreneurs are usually wary of these transactions to avoid concentrated scrutiny from regulatory agencies.
Synergies can also sway business owners to initiate a merger or acquire another entity. These instances occur when two companies combine to eliminate duplicate resources, including:
- Branch and regional offices
- Research campaigns
- Manufacturing establishments
In these cases, a merger can help maximize funds that can go directly to the most crucial aspects of their operations.
Is a merger and acquisition strategy right for your firm?
Longevity and success are common business goals for entrepreneurs who just started their businesses. While M&A can help secure these achievements, consider the factors below before entering negotiations with another firm:
- Specific goals you want to achieve
- The current operational capabilities of your organization
- The state of your company’s finances
- Advisors who will oversee the merger
Conducting thorough research can also help determine whether a merger or acquisition is an appropriate choice for the business. When considering these options, seeking advice from a legal professional can help finalize a decision.