There’s a saying in the old days that “two heads are better than one.” This sentiment is especially applicable to business mergers and acquisitions (M&A). By collaborating with a competitor, companies can realize a variety of synergies. This is basically cutting costs by eliminating redundant roles, systems or licenses. However, this type of collaboration comes with a steep price as the M&A process can last from months to a decade and is typically extremely labor intensive.

A merger and acquisition is an agreement that blends the liabilities and assets of two distinct entities to form one entity that has bigger market and more revenue opportunities. Companies typically acquire companies that have similar products, technologies or client bases. Additionally, purchasing an organization in an industry or country that is not in the same can help a company expand into new markets and profit of a lower tax rate.

The primary motive behind M&A is to improve efficiency of operations through achieving economies of scale, which means that the benefits of production volume increase access to capital, reduce manufacturing costs, and increase bargaining power with suppliers. The acquisition of technology from another company can also save years of research and development investment.

M&As are a way to transform a business into something that was never intended to be. In 2016, the giants of brewing Anheuser-Busch InBev merged with SABMiller to increase its presence in emerging markets. They were able make use of each other’s global network to reduce supply chain costs. In most M&A deals companies purchase assets from a different company by transferring cash or shares. It also takes on any debts. This is known as the purchase technique, and the assets of the acquired firm are registered on the acquired company’s books at their market (not book) value.

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