Nowadays, when business environment has become more and more competitive, companies have to grow to survive, merging with another company is considered to be one of the best solutions to this problem because it offers many great benefits to firms.
Firstly, merger helps companies achieve synergy and economies of scale. As we know, the more products we make, the lower the cost per unit is. When merger happens, fixed costs are distributed over a large volume of production and that causes the unit cost of production to decline. As a result, company’s profit will rise. Therefore, the two companies will work more efficiently together than either will separately.
Secondly, diversification is another goal of merging. When a company wants to enter a whole new field to reduce the impact of a particular industry’s performance on its profitability, it is advisable to merge with another firm rather than set up a new company with new brand, new process, new chains, etc. Merging help us move into a sector which promises greater growth or profits with lower costs.
Last but not least, mergers can give the acquiring company an opportunity to grow market share without having to really earn it by doing the work themselves – instead, they buy a competitor’s business for a price. For example, a beer company may choose to buy out a smaller competing firm, enabling the smaller company to make more beer and sell more to its loyal customers.
The main benefits that the merger brings give a trend, a choice that executives consider to develop the enterprise.
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