Mergers and acquisitions are common occurrences in the business world. But do they exactly mean? And why is it worth it? Well, let’s find out as we discuss what these two terms are all about as well as their benefits. Let’s get started!
Mergers and acquisitions refer to the process of joining two companies to form a single identity. This includes the brand image and the assets. A number of people usually think that these two terms can be used in a similar way. But this isn’t the case because there is a slight difference between these two terms.
A merger means amalgamating two companies by mutual consent. It usually involves some form of share allocation in which the initiating company offers its shares in exchange for merging the company’s shares, thereby forming one entity.
Acquisition, on the other hand, slightly differs from a merger since money is usually exchanged in return for controlling a stake in the company. It could be through purchasing 50% of the company’s shares to give it full control over the company’s decisions. It can also buy the whole firm upfront. This approach is usually a perfect option for small companies that are striving to become larger. If you are considering mergers and acquisitions for your business, you need to seek m&a advisory services.
With that said, let’s see some of the benefits of mergers and acquisitions.
- Access to a wide talent
It is no secret that there are shortages of workers in certain industries, such as engineering, construction, and programming. For this, it is very challenging for these industries to find new, trained, and talented workers to fill vacant positions. This makes a merger and acquisition a better option since it retains previous employees. If one of the companies did not have access to extensively trained, skilled, and talented employees, it will now be easy to access them.
Mergers and acquisition firms can substantially benefit from economies of scale. It could be in the form of lower unit costs, facilitated by lower fixed costs. For instance, there may be no need to have several stores open, particularly if they are closer to each other. Such companies may also benefit from efficiencies they can achieve.
- A bigger market share
Of course, all businesses want to acquire a bigger market share. But this can be sometimes quite difficult to achieve, especially if a business is still at its initial stages and operating under a low budget. This is where mergers and acquisitions come in. Once the two companies amalgamate, they will become larger and expand their market share. M&A advisory services can become handy if you are considering mergers and acquisitions to acquire a bigger share market.
- Tax advantages
There are plenty of tax advantages brought by mergers and acquisitions. For starters, companies with cash on hand can choose to assimilate rather than issuing dividends. Dividends are taxable while increasing shareholders’ value isn’t.
- Reduced risk
Mergers and acquisitions tend to allow a company to diversify. Since mergers and acquisition firms have more streams of revenue, they are able to spread risks across those revenues rather than having to focus on one stream of revenue.