Mergers and acquisitions (M&A) can be a game-changer for businesses. They can offer huge opportunities for growth, innovation and success. In fact, many of the world’s leading companies wouldn’t have reached the top without strategic M&A moves. In this guide, we’ll break down the top 12 benefits of mergers and acquisitions to help you decide if this path could be the right fit for you and your business.
What are mergers and acquisitions?
Mergers and acquisitions (M&A) are strategies businesses use to grow and stay competitive. A merger happens when two companies join forces to become one. An acquisition is when one company takes over another to expand its reach or operations. These moves can help businesses grow faster, diversify their services, and strengthen their market position. M&A is all about finding new opportunities to innovate, adapt and succeed.
You can learn more in our guide to the differences between mergers and takeovers.
💡Editor's insight
"For Q3 of 2024, there were roughly 436 domestic and cross border mergers and acquisitions in the UK". Source: Office for National Statistics
Top 12 advantages of mergers and acquisitions
1. Increased market share
When companies merge or one acquires another, their combined resources allow them to claim a larger portion of the market. This enhanced market position can make the business more competitive, enabling it to set trends, lead pricing strategies and expand its influence. By eliminating or absorbing competitors, the business can operate with less market pressure.
2. Enhanced economies of scale
Larger businesses often benefit from economies of scale, which reduce the average cost per unit by spreading costs over greater production volumes. By merging, companies can consolidate operations and share production facilities, which can lead to cost savings. This makes the combined entity more efficient and competitive in pricing strategies.
💡Editor's insight: "Economies of scale is just another way of saying the cost advantages a company when their production becomes more efficient. Increasing production while lowering the per-unit cost!"
3. Diversification of products
Diversification reduces risk. By merging with or acquiring another company, businesses can expand their offerings into new products or services. For example, a tech company acquiring a financial services firm can integrate fintech solutions, creating a more comprehensive portfolio.
4. Access to new markets
Expanding into new countries or demographic markets can be costly and time-consuming when done organically. Mergers and acquisitions fast-track this process and give immediate access to a customer base and infrastructure. For example, a European company acquiring a business in Asia gains a foothold in the region, bypassing the challenges of starting from scratch.
5. Increased financial power
Combined financial resources often strengthen the merged entity’s borrowing power and investment capabilities. Larger companies tend to have more creditworthiness and access to better financing options. Long term, this can be used to fund innovation, expand operations or even explore new ventures.
6. Access to talent and expertise
Employees are a company’s greatest asset. Mergers or acquisitions often bring a wealth of new talent, skills and industry expertise. This can foster innovation, improve operational efficiency and drive better decision-making. For example, a small business acquiring a niche firm with specialised employees can enhance its overall capabilities and service offerings.
7. Synergy creation
Synergies occur when the combined value of two companies exceeds the sum of their individual values. These synergies can take various forms, such as cost savings from shared resources, increased revenues through cross-selling opportunities, and operational efficiencies. For example, merging IT systems or combining supply chains can lead to significant cost reductions and enhanced profitability.
8. Elimination of competition
Acquiring a competitor directly reduces market rivalry, allowing the merged business to operate with fewer pressures. For example, if two businesses in the same industry merge, the resulting entity can dominate market segments and prevent customers from switching to other options.
9. Improved technology and innovation
Technology is a key driver of success in modern industries. By acquiring a tech-savvy company or a firm with cutting-edge innovation, businesses can accelerate their digital transformation efforts. This gives the business an edge over competitors and ensures it stays ahead of industry trends.
10. Better customer offerings
Mergers often lead to improved customer experiences by combining the strengths of both companies. A broader product range, improved service delivery, and access to new features or technologies can enhance customer satisfaction. For instance, a retail company merging with a logistics firm can offer faster, more reliable delivery options.
11. Tax benefits
Certain mergers and acquisitions can offer tax advantages. For example, if one company has significant losses, these can be offset against the profits of the other company, reducing the overall tax liability. Additionally, combining resources can lead to better tax planning opportunities, maximising savings across the merged entity.
12. Increased shareholder value
Successful mergers and acquisitions often result in higher stock prices and greater value for shareholders. Investors typically view the combined entity as more stable, profitable and capable of long-term growth. The integration of resources, enhanced efficiencies, and expanded market presence make the business more attractive to stakeholders.
Recap: What are the top benefits of a merger or acquisition?
Increased market share
Enhanced economies of scale
Diversification of products
Access to new markets
Increased financial power
Access to talent and expertise
Synergy creation
Elimination of competition
Improved technology and innovation
Better customer offerings
Tax benefits
Increased shareholder value
FAQs
What are the pros and cons of mergers?
Mergers offer advantages like increased market share, cost efficiencies and innovation. However, they also present challenges, including cultural clashes and integration difficulties. Learn more in our guide to the disadvantages of mergers and acquisitions.
Who benefits most from a merger?
Both companies involved in a merger can benefit if the transaction is well-planned and executed. Employees may enjoy better opportunities, shareholders can gain increased value, and customers may receive improved offerings. Ultimately, the party benefiting most depends on the specific goals and execution of the merger.
Do you need a solicitor for a merger?
Yes, you typically need a solicitor for a merger to ensure that all legal, financial and regulatory aspects are properly addressed. Buy a business solicitors can draft and review essential documents, perform due diligence, and help negotiate terms to protect your interests.
Final thoughts
Mergers and acquisitions are powerful strategies for achieving growth, innovation and competitive advantages. While they offer numerous benefits, success requires thorough planning, due diligence, and clear integration strategies. For businesses considering M&A, consulting with experienced professionals is essential. If you have a legal concern, get in touch today to see how our corporate solicitors can help.
References
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.