It seems like every day in the news we hear of a big merger or acquisition. One large company consumes another big company and becomes the big fish in the pond. Recently, Amazon bought Whole Foods, and CVS acquired Aetna. While the larger companies make the headlines, there are several mid-size and smaller companies that quietly decide to be merged or acquired by another.
Many different types of companies are deciding to enter the merger and acquisition game. When does a merger or acquisition make good business sense for a company? In today’s business climate, many companies are pondering that question. More and more company owners are being approached by similar businesses desiring to merge with their company.
Before making a hasty decision, one should speak with their business law attorney who can give them some directions or perspectives and help them examine the pros and cons.
Definition of a Merger and Acquisition
Often the terms ‘merger’ or ‘acquisition’ are used interchangeably. However, they do have slightly different meanings. When a firm takes over another company and makes itself the new owner, an acquisition has taken place.
A merger happens when two companies agree to form a single new company and operate as one single owner. Joining together will serve the best interests of both companies involved in the agreement. A merger or an acquisition can be a friendly or hostile purchase, depending on the situation or agreement. There are several reasons for a merger or acquisition, which may include the following:
Creating Synergy in the Company
When two companies become one, the concept of synergy can develop. Synergy will result in combining the business functions to increase company performance and reduce company costs. Establishing synergy and creating financial opportunities for the company may be the main reason for a merger or acquisition of a company.
Stimulating Business Growth
All companies want to grow and develop into something that will generate profits. Many companies create growth through expansion plans, and a merger or acquisition may be a smart way to accomplish this task.
A merger or acquisition will help one company obtain the services, products, and customers of another. It can be a more cost-effective way to build growth without having to start from scratch to make your own products or services.
A merger or acquisition will automatically create the instant growth from an established source. You will acquire the selling and manufacturing rights of a product or service that is already recognized with a consumer base. If you are seeking more qualified and trained staffers and want to avoid the costs and time to hire top talent, a merger or acquisition can be a good option.
Developing an Exit Plan
A merger or acquisition can be a great way to exit the business if you are planning on retiring or if you are not selling the business to other family members. Using a merger or acquisition as a plan to leave the business can help you generate retirement income and help you create financial stability for yourself and your family.
When you are contemplating a merger or acquisition, you need to make sure you know all the facts and laws regarding conducting a merger or acquisition in your applicable industry or state. Make sure you speak with a knowledgeable business law attorney, who can help you move forward with understanding, confidence, and success.