Need For Corporate Mergers

Posted by transworldma on March 10th, 2021

Running a business is no mean feat. There are numerous things to take care of to remain profitable. One of the best ways of expanding one's business is to consider acquiring a competitor's company or merge with a bigger one. The idea is lucrative, but it may not work all the time. Past incidents of successful corporate mergers have led people to applaud the union of Disney and Pixar. Not mergers are made in heaven. The M&A results have been the reason for the downfall for many a company too.

Some of the pluses of merging with a competitor company or acquire a part of it, thereby relinquishing the rights to hold on to the company name, may work. Still, it is advisable to consider the loopholes carefully to make it profitable. Some of the reasons for going ahead with a merger apart from mere profitability may include the following:-

· Economic- A merged company is definite to have more resources at its command than the polling of funds and assets. The scale of operations can be increased substantially, contributing directly to company finances. This will make it possible to utilize production facilities in a bigger way with a distribution network and research and development facilities being used to its extent as and when needed. The gains are most apparent when there is a horizontal merger inline i.e., the union of two companies dealing with similar products and services.

· Streamlining of Operations- Duplication of production units, accounting software, and personnel, as well as marketing staff, can be halved almost immediately after the merger takes place. This frees up the resource, with the availability of funds being the best result of such a union. The operation will be controlled by a single individual or a department, with inefficiencies being rooted out. The smaller company entities can make this a learning experience. In contrast, the more significant partner makes sure not to repeat the past mistakes when working as two separate companies. Coming together of brains is an added advantage for the newly merged company as well. New strategies will prove beneficial as there is no pressure to keep the competitor at bay anymore.

· Synergy- The merged company's valuation is expected to rise appreciably, with the sum of each former company's values being lesser than the united valuation. This result stems from the fact that the research capabilities will become more assertive on the successful merging of two entities. The production facilities get improved too with the prospect of increased profits slowly gaining ground.

· Tax Benefits- A business entity can avail of multiple tax shields, thus remaining profitable even during lean times. A company that incurs losses regularly will not be able to earn by claiming future profits. On the contrary, a merged company may recover some amount by setting off the profits garnered by a unit against a loss-making one.

Sadly, many company owners may have to sell a business in Tampa and Palm Beach, FL. Hiring an experienced business advisor may help them to sell it off at a profit.