A corporate merger or acquisition has a radical and far-reaching effect on the growth prospects of a business enterprise along with changing its long-term outlook. From a strategic point of view, mergers and acquisitions are a critical component of corporate finance. In this type of corporate restructuring, the individual companies aim to grow rapidly, increase their profitability, gain the competitive advantage over their competitors and capture a greater portion of the market.
Generational Equity expert Ryan Binkley says that corporate enterprises enter into mergers and acquisitions for a variety of reasons, which include –
Mergers and acquisitions can increase the growth of a corporate enterprise exponentially to gain the competitive advantage over its competitors in the market. Normally, it would take years for the individual companies to achieve the same growth potential and expansion levels if the companies had not merged or been acquired. The Ryan Binkley Generational Equity team says this increase in corporate growth offers the individual companies better opportunities to generate more sales and revenue while exploit and capturing new markets.
- Exploit market conditions
In most economies, the market system is never perfect and this implies that there are more opportunities for companies to exploit this market imperfection to their advantage. By taking over another corporate enterprise through acquisition can facilitate monopoly-like conditions that enable a company to gain the competitive edge over its competitors. In many cases, corporate enterprises opt for mergers to control the supply of raw materials to give it an undue gain over its rivals in the market place.
- Acquire unique capabilities
Corporate enterprises decide to undergo mergers and acquisitions to get their hands on certain unique capabilities and resources that would provide pragmatic shift for the company. This usually includes licenses and patents that can give the company a competitive advantage in the market in terms of sales and revenue over its competitors.
Mergers and acquisitions improves the company’s performance as the combined value and performance of two corporate enterprises is always greater the sum of each individual enterprise. When two corporate enterprises combine to form one company, this new company is in a better position to generate more resources in terms of sales and revenue as compared to the individual entities.
- Transfer of Technology
A popular reason why companies opt for mergers and acquisition is the transfer of unique technologies that enable to make innovative products/services at competitive prices in the market. This enables them to enhance their market share and generate more revenues for their shareholders.
Mergers and acquisitions allow corporate enterprises to diversify and exploit other areas of business. This spreads the risk of the business over many market segments and offers such companies more opportunities to generate more sales and revenue along exploiting new markets. Such diversification also gives the companies more recognition in the market.
- Handle large clients
Mergers and acquisitions in the service industry enable individual enterprises to place orders with large clients. The merged companies have greater resources at their disposal to execute such orders for such large and powerful clients.
The Ryan Binkley Generational Equity team says that mergers and acquisitions offers companies greater incentives to enhance their performance in both the present times and the long run with success!