Could a merger be the answer for two struggling companies?
Against an uncertain economic backdrop, many businesses may consider joining forces with a firm operating in the same marketplace to enable them to increase their market share and broaden the scope of their operations.
Mergers can take place between two or more firms, and can provide numerous mutual benefits for the companies involved.
Here are just some of the advantages of a business merger:
Greater competiveness
When two businesses come together under a merger, the newly formed larger company may be better able fend off competition from rival companies, and achieve a greater standing in the international marketplace.
Greater Investment in R&D
Research and Development (R&D) is pivotal to ensuring that businesses can continually find new strategies to develop their commercial functions, improve operational processes and enhance their product line.
The new company may have more capital to draw on to invest in R&D, leading to a better quality of service offered to customers.
Greater diversity
A merger between companies in two different industries, such as AOL and Time-Warner, may allow companies to diversify the products and services they offer, by sharing knowledge that could also be applicable to their sector.
Better economies of scale
The new company may be able to reduce costs in a number of areas. This could include having access to borrowing at better rates of interest as a result of forming a larger company and having lower overheads if the new company will be operating out of fewer offices.
The new company may also be able to bulk-buy materials, and thereby secure a discount on those products.
While mergers have many benefits, businesses that find themselves faltering in the current climate may also want to consider that mergers may also have drawbacks, such as potentially diluting the strength of the brand.
There are also a number of other options that businesses can consider such as business restructuring.