A merger is an agreement held between two different companies to become one entity. It’s an agreement to share their total assets, profit, loss, and market share equally with each other.
There are several types of partnerships or mergers like a horizontal merger, vertical merger, market extension merger, product extension merger, and conglomerate mergers.
Also, there are many reasons and benefits of why companies choose any of the mergers and are ready to divide their whole authorities with anyone else.
The benefits of a Merger are
- Economic of sale
- Tax benefits
- Financial resources
- Entry in the global market
- Growth and expansion
- Help to face competition
- Increase in market share
- Increase in Goodwill
- Research and development
- Miscellaneous advantage
Let understand the advantages of the companies who go for a merger in brief
Economic of Sale
Economics of scale is cost benefits repeated by the companies when the production level will be efficient. Any company can achieve economies of scale by an increase in the production of the product and lowering their prize. This is only possible when the huge cost is used in the preparation of a large number of goods.
Merger plays a vital role in achieving the economic of sale. Due to the merger, the financial condition of the company becomes strong and able to buy production material in a large number with a good discount. This helps the merger company be able to produce more goods or services and distribute them at a huge level easily.
There are many types of economic of sales are seen, As
- Technical economics
- Bulk-buying economics
- Financial economics
- Organizational economics
This cost refers to the fixed technical cost of the company. Which usually reduces after the merger.
Bulk buying economies offer a huge discount to the merger company while buying raw material for production in bulk quantity.
Financial economics help merger company to negotiate for better interest rate from financial institutions like the bank, credit provider, etc
It helps to lead the organization with proper command so that it may succeed to meet their goals.
A merger company can gain a large number of tax benefits. It gains benefit in the face of when a profit-making successful company take-over an unsuccessful company. Also when the merger company enjoys the tax at a subsidized rate.
The merger of two companies help to increase financial resources. The combined asset of two merger companies help them in two ways which are:
- Increases in the financial worthiness of the company in the market
- Help to gain a loan in a subsidized interest rate because of a stable credit situation
Entry in the Global market
The global market is a huge level market in which any company can take part in any region of the world. In this digital global world, Any company can sell and buy their product from any place through the internet.
Also, there is no limit and restrictions for entrance in the market. Mergers help merged companies to get an easy entry into the market with a good and large number of products, services, and resources. Which helps to attract more consumers.
The example of some merger companies showing their entry in the market
- Danaher / GE Biopharma
- FIS / Worldpay
Growth and expansion
Mergers help companies to grow and expand their business products and resources. It helps businesses to perform well in a national market by delivering good quality products and services first and then introduce their product in foreign countries for more revenue and achieving large market space.
Help to face the Competition
Merger help companies to compete with their national and international competitor and become stable in the market. It helps companies to face market competitors in two ways.
- Merging the competitor in their company
- Provide the best quality product and services at market competitive price
Increase in market share
Mergers also providing aid to merging entities to increase their market share. It is a mean of stability which is achieved by two-steps
- First, provide a satisfactory quality product and services to the consumer.
- Secondly by having an agreement of the permanent supply of products to specific clients.
Increase in Goodwill
Mergers also play a vital role in raise the goodwill of the company in the market. It makes it possible by increasing the confidence of shareholders on the merger entities that it has complete capacity to give good performance in the market and will succeed to generate huge revenue. It also by creating a good image of the company among consumers by delivering good quality products on time.
Research and Development
As the merger is a reason behind the increase in the financial budget of the company. So they can afford anything they need for the betterment of the merging entities. It helps to invest in the research and development sector of the company. For this, they hire highly qualified and skilled employees to work on invading R&D programs in the company.
Miscellaneous Advantage of Mergers
- Mergers help to generate revenue for the company through funds and from other shareholders
- It helps to invest in research and development so that company can meet with the global demand
- Also, it helps to deal with threats from multinational companies and always takes an eye on their market performance
- It helps struggling and drawling companies to survive by giving them financial aid
- Through the merger, any merger entities reduce the negligence in the production of and operating activities by investing to hire good supervisor staff
A merger is a process when two companies decided to become one entity. It helps them to attain profit, reduce financial problems, generate revenue, sustain the market position, overcome the fear of loss, and the burden of responsibilities.
It also helps to do changes in the operating and production level of the company on time so that they meet with competition and succeed to deliver good quality products to consumers. A good and result oriented merger will lead products and companies from national to become international and known globally.