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To gain an edge over their competition, organizations frequently merge and acquire each other, combining their assets and pooling their market shares. A recent EY survey revealed 56% of those asked admitted they’re planning to actively pursue a merger or acquisition in the next 12 months - even with the usual associated risks and the current uncertainty caused by the coronavirus pandemic.
In this blog, we’ll run through the main benefits of mergers and acquisitions (M&A) and why so many companies are eager to take that leap.
- A Larger Market Share
- Access to Industry-Leading Talent
- Exploring New Markets
- Lower Costs, Increased Profit
- Favorable Taxes
- Diversification
- Cornering Future Value
- Support During Tough Periods
- Denying Your Rivals
1. A Larger Market Share
One of the most obvious benefits is the increased market share a merger or acquisition can bring. By hoovering up other organizations within your industry, you’re ensuring a greater slice of the total market is yours.
Take the now-infamous merging of Exxon and Mobil in 1998. The two were already the first and second-largest oil producers in the United States before merging. Following the deal, the organization had a huge market share and saw shares increase by 293%.
2. Access to Industry-Leading Talent
The more niche a job market, the greater the lengths an organization will go to get the very best individuals. Sometimes, the only way to ensure the best talent works for you is by acquiring or merging with another company.
This practice is particularly common when brand new technologies take markets by storm. If there’s only a short list of people who can utilize that tech, then you risk falling behind if they work for your competitors.
3. Exploring New Markets
Despite the challenges of today’s landscape, growth remains the number one priority for CEOs in 2021. One of the fastest ways to grow is to enter a new market and reach customers who were previously inaccessible.
However, global expansion isn’t a simple process. Managing cultural differences, language barriers and international regulations can be problematic when establishing a new entity. To get around this, some organizations acquire a business already operating in their desired market.
4. Lower Costs, Increased Profit
The hope for any M&A is it’ll lead to fewer costs and higher profits. By operating on a bigger scale, organizations can increase access to capital and reduce costs thanks to stronger bargaining positions with suppliers.
As operations grow exponentially, companies can also benefit from the higher volume of stock they’ll work with. By working with bigger volumes, organizations can negotiate better deals.
5. Favorable Taxes
Acquiring a company based in another country can result in a wide range of benefits, including lucrative markets and access to new talent. Plus, many governments offer tax reductions once M&A are complete.
This means you can enjoy all of the benefits of entering a new market while simultaneously taking advantage of favorable tax rates. Certain countries are very popular with M&A thanks to the taxation laws in place there.
6. Diversification
It’s good business practice to have as diverse a portfolio as possible. A key benefit of an acquisition is to bring other tools, products and services under your organization's umbrella.
Take Facebook, for example. The social media behemoths have realized certain demographics weren’t engaging with their platform. So what did they do? They sought out those demographics and acquired the platforms they were engaged with (Instagram and WhatsApp).
7. Cornering Future Value
Sometimes it’s difficult to see which companies will thrive and which will fail in the future. However, it’s often quite straightforward. Some of the biggest deals of all time were carried out because it was obvious what the future held.
Take Disney’s acquisition of Marvel in 2009. Although no one could have predicted the scale of success that would follow, Marvel had just released Iron Man in 2008 which made half a billion dollars at the box office.
8. Support During Tough Periods
Business is survival of the fittest and tough market conditions can bring even the biggest organizations down. During especially challenging periods, mergers and acquisitions often increase because pooling resources is an effective way of waiting out the storm.
Take the 2008 financial crisis, for example. With conditions so poor, many banks merged to protect themselves over the next few years. Better to merge with another bank than fall into obscurity.
9. Denying Your Rivals
Sometimes, an acquisition is carried out in part to prevent a competitor from doing the same thing. Huge organizations are always jostling for an edge over their rivals. Acquiring or merging with another company can boost their need to establish themselves as the leader within their industry.
With so many important benefits, it’s easy to see why M&A are so popular. If you’re thinking of following the same course of action, make sure to grab our free resource.
Planning the Perfect Merger or Acquisition
To make sure your merger or acquisition is a successful one, download our free guide today. It’s packed with useful information that will ensure you avoid the common pitfalls that have caused many deals to fall at the final hurdle. Click the link below to get your copy now.
