Growth of Business Through Mergers

Merger and acquisition, also known as M&As, are often used interchangeably; however, there are poles apart from one another. Although, both of them aimed for achieving improved synergies in the organisation. On one hand, the merger is concerned chiefly where individual organisations combine with other companies to operate as a single entity. An acquisition can be described as a corporate transaction that is mainly done to get the profits share of the targeted company without affecting its autonomy or the overall brand positioning. 

Today, this study material notes on the Growth of business through mergers; you will get a detailed understanding of what mergers strategies and acquisitions are, the Benefits of mergers and acquisitions, along with differences between M&As, and other related topics. So, without further ado, let’s get started with the Growth of business through merger strategies study material.

Introduction to Mergers 

A merger can be defined as combining with other companies and operating as a single legal entity. The companies that go for mergers are primarily equal in scale and size of operations. Mergers lead to better utilisation and planning of financial resources. 

Different Types of Mergers 

There are mainly five types of mergers. These are as follows- 

• Product or congeneric extension merger 

Mergers take place between companies that operate in a similar market. When two large companies come together, it increases the customer base and overall market share. 

• Conglomerate merger 

The Conglomerate merger can be described as one of the merger strategies in which two companies join hands that operate in unrelated activities. If there is an increase in the shareholder’s wealth, the union will occur. 

• Market extension merger 

Some companies operate in different markets but sell the same products to access larger audiences and more market share. 

• Horizontal merger 

The horizontal acquisition is when a company decides to union another company from a similar sector or industry.

• Vertical merger 

When a company operates in the same industry, however, at different levels of the supply chain. 

Benefits of Mergers 

There are several benefits of merges. These are as follows- 

• Increases market share 

• Reduces cost operations 

• Avoids replications 

• Takes business to new geographical locations 

• Saves company from bankrupt 

Disadvantages of Mergers 

Like every other thing, mergers have several disadvantages too. These are as follows- 

• A rise in the price of products and services 

• Develops communication gaps 

• Leads to unemployment 

• Inability to achieve economies of scale 

What is Acquisition?

Acquisition is one of the essential concepts of Entrepreneurship. An acquisition can be described as a corporate transaction that is mainly done to get the profits share of the targeted company without affecting its autonomy or the overall brand positioning. The main reason behind acquisition is to build on and take control of other company’s strengths. 

In acquisition, one company becomes the parent of another company. There are higher chances that the acquiring company may show a certain level of supremacy in a working firm; however, it’s not the same as in a merger where the controlling body changes. 

Different Types of Acquisitions 

Acquisitions are mainly of four major types. These include- 

• Horizontal Acquisition

When two companies in similar industries come together, it is called horizontal acquisition. The most common example of horizontal acquisition is Facebook getting WhatsApp. Although WhatsApp still exists as itself, it is currently owned by Facebook. 

• Vertical Acquisition

The vertical acquisition can be expressed as when the company decides to acquire either a distributor of its products, a supplier of inputs, or a company that already sells certain products. An example of vertical acquisition is when a garment company acquired cotton or a silk farm. 

• Congeneric Acquisition

The congeneric acquisition occurs when two similar companies come together or form a unit. 

• Conglomerate Acquisition

The conglomerate acquisition is when the company decides to acquire a company that is entirely different from the king of the business it does. The primary purpose of doing so is diversification. 

Benefits of Acquisitions

There are several advantages that the acquisition offers. These include-

• Reduced entry barrier 

• Market power 

• New resources and competencies 

• Access to experts 

• Access to more capital 

• Fresh perspectives and ideas 

Consequences of Acquisitions 

There are a whole set of consequences or disadvantages that come along. Here is the list of several potential pitfalls of acquisitions. Let’s have a look- 

• Culture clashes 

• Duplication 

• Conflicting objectives 

• Poorly matches business 

• Pressure on suppliers 

• Damage to the existing brand’s image

Merger v/s Acquisition 

Most people think M&As are similar terms and have nearly no difference. However, they are designed and constructed differently from one another. Here we have listed some differences between merger and acquisition strategies or M&As. Let’s have a look- 

• When discussing the acquisition, both the companies involved continue to perform organisational activities as two separate legal entities. However, one company becomes the parent of another company. 

• On the other hand, as per merger strategies, both the companies combine. However, only one successfully survives, whereas the other one gets summoned.

Conclusion 

With this, we end our study material on the Growth of business through mergers_Entrepreneurship. According to most people, M&As are nearly similar terms. However, they are different from one another in several ways.

In this Study material notes on the Growth of business through mergers_Entrepreneurship, we also studied acquisition and merger strategies in length. We covered several benefits, drawbacks and other related topics in detail. We hope the Growth of business through mergers study material must have helped attain a greater understanding of this topic.