The manifold advantages of Mergers and Acquisitions The key term mergers and acquisitions consist of several advantages that are discussed below: 1) Accelerating the growth of the company especially when the internal expansion gets limited because of the resource scarcity. The need of internal growth comprises of the fact that companies need to make a smart development of their operating facilities such as: a. Marketing b. Research c. Manufacturing But inadequacy or lack of time and resources that are required for the internal expansion may constrain the growth pace of the company. Therefore a company can attain facilities of production along with other resources from outside by making use of the Mergers & acquisitions. 2) Improving profitability due to the reason of combining two companies may produce a consequence in an average profitability. This is because of the efficient usability of resources and reduction of cost. Such can take place due to: a. Scale of economies: This takes place as soon as the production volume makes cost reduction to each unit. This is for the reason of merger and acquisition where a fixed rate gets distributed over a bigger production volume and causes the production unit cost gets decreased largely. From the other types of individualities the economies of scale may rise like the management functions, facilities and resource and system management. This takes place because of some provided facility, function or resources, which gets utilized on a large scale of functioning of the combined companies. b. Operating economies: This takes place when a combination of two or more companies takes place and that results in reducing the cost because of their operating economies. Or it can be said that a firm that is a combination of other companies may reduce or avoid the functions of over-lapping and consolidates its functions of management like the R&D, marketing, manufacturing and hence cuts off the costs of operation. For instance, a combined company may make elimination of the duplicate distribution channels or create a center of centralized training or even can, make the introduction of a control system or an integrated plan. c. Synergy: This term means a situation when the combined firms become more valuable than those firms which are operating individually. It implies gaining a large amount of benefit except for the ones that are related to the scale of economies. 3) Spreading out the company risks, especially when such acquires those trading which does not have a correlated stream. Spreading out actually means growth in an unrelated business with the firm
combination. Its consequences in total risk reduction. 4) With the merger the financial synergy may take place and henceforth makes the firm benefitted in several ways such as: a. Eliminating all the constraints related to finance. b. Enhancing the capacity of debt. This is due to the reason that a couple of companies may bring about flows of cash which will be making a reduction in the risk. c. Reducing the financial costs. As because of the financial stability the firms which are Mergers & acquisitions firms can ably make borrow at a much lower interest rate. Pomerantz Lawfirm, the author of this content and the owner of pomerantzlawfirm.com discuss here about Mergers & acquisitions. visit here to contact author and you can also follow google+. This content has been taken from : http://pomerantzlawfirm.wordpress.com/2014/06/17/themanifold-advantages-of-mergers-and-acquisitions/