Reasons For Corporate Mergers And Acquisitions

Corporate Mergers and Acquisitions is a fact of life in the business world. When you check out the company profile for many listed companies in the stock exchange, you will notice the trend in Corporate Mergers and Acquisitions.

Why is there a need for Corporate Mergers and Acquisitions?

There are many reasons for Corporate Mergers and Acquisitions.

1. Diversification

When a company gets big enough, diversification to reduce business risks is a natural course of action.

When a company in the construction industry wants to venture into the agricultural industry, the easiest way to do so is to buy an existing business.

This ensure that the

risk of failure is reduced, since the acquired business has the manpower and customer base for growing in the agricultural industry.

2. Growth

Corporate Mergers and Acquisitions is a strategy for business growth.

It is hard for a new business to grow bigger without acquiring another business. Sometimes, the companies in the third and fourth position in a given industry merge to become the industry leader.

Sometimes, the company in the third position acquires the company in the fourth position for the same reason.

3. Profits

Corporate Mergers and Acquisitions is down with profitability in mind.

When a fundamentally sound company gets into financial problem, other companies will acquire this company. After a series of restructuring, the parent company will sell this acquisition for a profit.

Some venture capitalists are in the business of buying and sell companies to make a profit.

4. International presence

Corporate Mergers and Acquisitions is a method to make an international presence.

Many big corporations from the Middle East and China are buying companies in other countries. The reason is to venture into the international market.

5. Kill competition

Some industrial leaders

make use of Corporate Mergers and Acquisitions to kill competition.

That is the case when they sense that a fast growing company is threatening their market share.

Since the growing company is still small, it makes sense to buy the company over.

In this case, the industrial leaders gain from the expertise of the small company. They also kill the possibility of the small company becomes a bigger threat.

The problem with Corporate Mergers and Acquisitions is that management of the two business entities after the legal processes are completed.

Brain drain is often the result of the mergers and acquisitions. When a big company buys over a small company, it is very common for the employees of the small company to quit.

They find it hard to adapt to the work culture of the big company.

About me:
Scheng1 is a passionate blogger from Singapore. Rich in every sense reveals my deep desire in enjoying life, and be rich in every possible ways. Personal Finance is about money, from making money to investing money.  Retirement in Asia contains resources about retirement planning.

Article Written By scheng1

Last updated on 01-06-2016 74 0

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