Creating a synergy

The greatest advantage of Merger & Acquisitions is the creation of synergy. Combining businesses can increase efficiency and decrease costs. A company would normally merge with or acquire another company which has strengths and weaknesses that would compliment its own.

Increase in revenue

Companies can increase their revenue and scope of operations as mergers or acquisitions gives them access to a whole new market altogether. Enhanced credit worthiness can help the company easily raise capital in the operating market. Moreover big firms are considered as a safe bet by investors and expect a lower rate of return for the capital supplied by them. This reduces the cost of acquiring capital post the merger.

The capital liquidity can be used by companies for various purposes like Research and Development, training initiatives for employees, market penetration and expansion, talent acquisition etc. which overall impacts the productivity positively and also offers more value to the customer.

Increase market share

Due to the market dynamics in this day and age, the sheer amount of investment required to gain market share is very high. Merger or acquisition gives companies an opportunity to increase their market share instantly in a similar product category. Whereas in a scenario where a company decides to merge or acquire another company with a diverse product portfolio, it helps the acquiring company to diversify as well as cross sell. Geographic expansion through mergers and acquisitions can also help companies cross sell.

Tackle competition

Mergers help increase the market value and market share of a company. This enhanced market share gives more power to tackle existing competition while discouraging future competition by creating entry barriers. A merger can also help companies to move towards a more value based selling, since the pricing pressure is reduced. Mergers can help companies tackle local as well as global competition.

Advantage of a vertical merger

Vertical merger implies that a company can choose to acquire its distributors or suppliers. This can result in substantial cost advantage for the company due to savings on the profit margin paid out to the suppliers. Similarly acquiring a distributor would result in shipping and distribution cost.