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Businesses decide to merge for a variety of reasons

On Behalf of | Mar 13, 2015 | Mergers and Acquisitions

In the life of a business there are often many twists and turns. This is true regardless of the nature of the business. In some cases a company will consider and possibly pursue a merge with another one. This action can be prompted by a variety of things. We will cover some of those reasons in this post.

One reason could be to eliminate competition. When businesses merge, the company that is acquiring the other gains a larger market share.

Another reason is to increase supply-chain pricing power. Acquiring a distributor of supplier in a vertical merger eliminates margins that the acquired business put in place to make a profit prior to the merger.

Growth is a third reason that businesses might merge. Often called a horizontal merger, this course of action helps a business to quickly grow a market share through the purchase of another company’s business.

Sharpening the focus of a business or diversification could prompt businesses to merge as well. A merger could deepen market penetration in key areas of operations. It could also reduce the impact of another industry’s performance where profitability is concerned.

Last, the combination of the activities of businesses could result in an increase of performance while at the same time decrease costs.

When any action of this magnitude is pursued it is vital that all the details be thoroughly scrutinized. This can reduce the odds of issues arising later on. Accordingly, working with a lawyer who handles these types of transactions is advisable.