Motivation behind M&A
Mergers and acquisitions (M&A) are transactions in which one company acquires another company, or two companies merge to form a new entity. The motivations behind M&A can vary depending on the specific circumstances, but here are some common reasons why companies might pursue M&A:
Synergy: Companies may pursue M&A in order to achieve synergies, or benefits that result from the combination of the two companies. Synergies can include cost savings, increased efficiency, and improved competitiveness.
Diversification: Companies may pursue M&A in order to diversify their business lines or geographic presence. By acquiring a company in a different industry or region, a company can reduce its dependence on a single market or product line.
Access to new markets: Companies may pursue M&A in order to gain access to new markets or customer bases. By acquiring a company with a strong presence in a particular region or industry, a company can expand its reach and tap into new revenue streams.
Innovation: Companies may pursue M&A in order to acquire innovative technologies or intellectual property. By acquiring a company with valuable patents or proprietary technology, a company can gain a competitive advantage in its industry.
Financial benefits: Companies may pursue M&A in order to achieve financial benefits, such as increased revenue or profitability, or to gain access to capital markets. By acquiring a company with a strong financial position, a company can improve its own financial performance.
Defensive strategy: Companies may pursue M&A in order to protect themselves from competitive threats or to fend off hostile takeovers. By acquiring a competitor or a company with complementary capabilities, a company can strengthen its position in the market and make it more difficult for competitors to gain a foothold. Overall, there are many motivations behind M&A, and companies may pursue M&A for a combination of these reasons. The success of an M&A transaction will depend on a range of factors, including the strategic fit between the two companies, the terms of the deal, and the ability to execute on the integration process.
The main motive behind M&A is economic growth. This can be done in many ways.
- Reduction of fixed costs by removal of duplicate departments and operations.
- Increasing the market shares
- Selling the first company’s products to the customers of the other company and vice versa. This is called cross selling.
- Improving the marketing and distribution aspect of the company according to the demand.
- Reducing the tax liability by taking over a company that is under loss
- Expanding the company to other markets by diversifying geographically.
