Toggle Menu


← Back to Blog

Why do businesses merge with or acquire other businesses?

In the business world, companies are bound to compete with one another to stay on top. However, there are always business entities that are more successful than others. The other businesses continue on their way and grab any opportunity they can to succeed. One of those opportunities includes business merger and acquisition.

But why do American businesses, including those in Indiana, consider mergers and acquisitions? Mergers and acquisitions is a chance for corporate restructuring that plays an important role in the corporate finance world. To put it simply, it is a process where two companies are combined while acquisition involves a company that wants to acquire a business to stay competitive.

There are many reasons why a business would acquire or merge with another business. The most common factor is the potential growth of the business. A business merger may give the acquiring company a chance to grow its market share. In addition, diversification in the business puts companies at an advantage when they choose to merge or acquire another business. Restructuring may reduce the effect of a particular industry to the company’s profitability.

Mergers and acquisitions are also cost-effective. They can reduce the costs of developing business activities that will complement a company’s strengths. The acquisition can also increase the supply-chain pricing power. Aside from that, such business restructuring is one way to eliminate possible competitors of the business.

Buying out a company or merging with another can be a good investment when it comes to accomplishing one company’s long-term goals. However, a business merger and acquisition is a different process and the issues that need to be addressed are different. Being mindful of those issues may help business owners make the best and most appropriate decisions before jumping into the deal.

Source: Investopedia, “Why do companies merge with or acquire other companies?” Rob Renaud, Accessed on Feb. 3, 2015