At some point, you must have had about company mergers. However, you may fail to grasp the concept of mergers and why companies resolve to merge. The article breaks down this concept simply and straightforwardly.
Definition of Company Merger
A merger refers to the consolidation of companies and assets between two entities. It results in the seizure of one firm’s existence while the other retains its name and structure. Notably, one company takes a large stake in the second company.
Reasons for Merging
Mergers and acquisitions do not pop out of the blues. Various factors and reasons drive companies that opt to merge. They include;
Expansion and growth. The acquiring company may identify the market occupied by the target company and wish to occupy the market space. By merging, the acquiring company gets to expand its outreach to new regions and customer outreach.
Scatter competition. A target company may pose as a strong competitor in the market. To improve its competitive advantage, the acquiring company may opt to merge and buy a large stake of the target company.
Reduce operation costs. Mergers also help companies to increase supply-chain pricing power. This implies that the company enjoys economies of scale and subsequent reduction of costs.
Saving a company. Companies that are on the blink of closure may opt to merge to keep their business. The profitable company will bail out the target company by consolidating assets.
Diversify products and services. Two companies may decide to merge to expand their portfolio with more products and services under one roof. This gives them a competitive advantage over others in the marketplace.
Tax liability.
Way to Go
Giving up your company’s name and identity is never easy. However, circumstances such as the need to expand and bankruptcy may force you to merge with another company. If you plan on merging, make sure you contact Spearing Capital & Consulting Inc. for amazing deals.