Benefits of Mergers and Acquisitions Every Company Must Know
Mergers and acquisitions are most common in the healthcare, technology, retail and financial sectors. This strategy has been successfully used over the years to diversify or simply restructure a company to add value. It is also a good way to improve the chances of wealth maximization and achieving optimal market share.
A company purchases another outright in an acquisition, while a merger is the combination of two firms to form a new legal entity, according to an article by Investopedia. When implemented well, it could be highly beneficial and help a company grow and thrive in the competitive landscape.
For example, Walt Disney acquired Pixar Entertainment for $7.4 billion. This merger allowed Disney to become the leading provider of family films, while offering a boost to Pixar’s production process. Take a look at the other significant benefits of M&A.
Ø Tax Benefits
It helps to run the business combination smoothly. This is because the taxes payable by the acquiring company are reduced. The organization is more likely to achieve better capital by benefitting from tax concessions. In fact, it also lets shareholders attain a more diversified portfolio. However, make sure that the target company belongs to a country or a market with a favorable tax regime.
Get in touch with professionals who can ensure skillful negotiations and careful drafting that are essential for acquiring or divesting, according to experts at Praxis Legal Solutions. This is applicable for different types of business assets, including buildings and intellectual property.
Ø Reduced Overheads
The marketing budgets are shared and purchasing power and capital access increases. You can also ensure better bargaining with the distributors. In fact, the overall operational costs are also lowered in the long run, which increases profits. In short, bigger companies are more likely to enjoy benefits that are only a dream for smaller ones. You expand to reach a better market share, while also entering new markets in the process.
Ø Risk Diversification
Your goods and services increase following mergers and acquisitions. You can easily sell them via your existing distribution channels. Further, having several revenue streams can help you spread the risk across them. If one of them underperforms, another is available to balance it out. No wonder there were 281 M&A transactions between August 2019 and August 2020, valued at more than $1 billion, according to figures released by Statista. To make the most of this benefit, consult the best legal services in your city.
Ø Better Competition
In simple terms, a bigger business can compete for more. This can be useful in several ways. It can ensure high operational standards, drive loyal customers and leverage technologies in a much efficient manner. This can help you stay ahead of your competitors and prevent the risk of losing relevance in the industry. Firms also feel the necessity of constant improvement that could lead to higher profitability in the long run.
In all, mergers and acquisitions come with a host of advantages. Besides organic growth, it welcomes strong prospects to take your business to new heights.
