Mergers and acquisitions (M&A) are widely used business terms that describes situations in which businesses consolidate or one company acquires another. Earlier, Anand Jayapalan had spoken about how companies may go for a merger or an acquisition for a number of reasons, starting from enjoying financial gains to improving market reach and share. Here are a few of the key advantages of M&A:
- Improved economic scale: A large company is likely to have greater needs in terms of supplies and materials. As these companies buy necessary raw materials and/or supplies at higher volumes after a merger, they would be able to benefit from economies of scale and incur lesser expenses. This would ultimately be a benefit for its consumers as well, as the company can potentially pass those lower costs onto them. Negotiating better contracts due to higher procurement volumes, better technology pricing due to a higher number of licenses and lower costs of shared services supporting more employees, are some of the ways M&A initiatives can lead to improved cost savings.
- Lower labor costs: A merger or acquisition might lead to having multiple staff members in a team who do the same job at each individual company. Hence, companies can simply eliminate unnecessary staff and reduce its overall labor expenses, while also maintaining a more effective and strong labor force. Business leaders involved in the M&A can review the performance of employees in similar roles and select the best talent for each position.
- Increased market share: As two companies operating in the same industry or providing similar services or goods come together, the newly formed enterprise would be able to greater market share. It can tap into a range of resources that both the companies bring to the business deal. This helps companies to provide more products or services to the consumers, and gain better brand recognition.
- More financial resources: Companies involved in a merger or acquisition ideally pool their financial resources, which essentially increases the overall financial capacity of the new business. Brand new investment opportunities additionally may present themselves or the company might be in a better position to reach a wider audience by leveraging a larger marketing budget or improved inventory capabilities.
- Enhanced distribution capacities: A merger or acquisition may help a brand to expand geographically. This would invariably help increase its ability to distribute goods or services on a wider scale, and reach a greater number of customers, ultimately improving the brand recognition and sales prospects of a business.
- Improved asset leverage: Mergers and acquisitions provide a chance to enhance the efficiency of capital-intensive assets. For instance, a corporation owning numerous stores may choose to retain only a portion of the acquired company’s stores. Industries such as manufacturing and pharmaceuticals, which rely heavily on assets like production facilities and research labs, can benefit from this optimization. In the realm of technology and operations, the consolidation of data centers, physical mail and scanning centers, and archival facilities presents an opportunity for more effective utilization of assets.
Previously, Anand Jayapalan had discussed that acquisitions and mergers can generate significant profits for the companies involved. Hence, opting to merge with another business or acquire a smaller company can be a strategic move for many enterprises.