Mergers and acquisitions are the acts of consolidating companies or assets, with an eye toward stimulating growth, gaining competitive advantages, increasing market share, influencing supply chains, etc.
Why we go for Merger ?
Below mentioned are some of the benefits of the Merger:
☞ Economies of Scale:
An economy of scale is the cost benefit that a Company obtains due to Merger. An amalgamated Company will have more resources at its command than the individual Companies, which helps in increase of the scale of operations and the economies of scale. These economies will occur because of more intensive utilisation of research and development facilities, production facilities, distribution network, etc. Due to Merger, Company became large and can get huge discounts on purchases on a large-scale.
☞ Operating Economies:
A number of operating economies will be available with the merger of two or more Companies. Duplicating facilities in accounting, purchasing, marketing, etc. will be eliminated. Operating inefficiencies of small concerns will be controlled by the superior management emerging from the amalgamation. The amalgamated Companies will be in a better position to operate than the amalgamating Companies individually.
Mergers can help Companies to grow and expand their business activities. This growth and expansion are achieved by, making a strong presence in the domestic markets and entering into various foreign markets. A Company may not grow rapidly through internal expansion. Merger or amalgamation enables satisfactory and balanced growth of a Company.
Two or more Companies operating in different lines can diversify their activities through amalgamation. Mergers are frequently undertaken for diversification reasons. Since different companies are already dealing in their respective lines there will be less risk in diversification. When a company tries to enter new lines of activities then it may face a number of problems in production, marketing etc.
When some concerns are already operating in different lines, they must have crossed many obstacles and difficulties. Amalgamation will bring together the experiences of different persons in varied activities. So amalgamation will be the best way of diversification.
☞ Increase in Value
Merger aids in increasing the market share of the merged Company. Two companies may undertake a merger to increase the wealth of their shareholders. Generally, the consolidation of two businesses results in synergies that increase the value of a newly created business entity. Essentially, synergy means that the value of a merged company exceeds the sum of the values of two individual companies.
☞ Tax Purposes
Mergers result in a large tax benefit to the Companies. If a company generates significant taxable income, it can merge with a company with substantial carry forward tax losses/profits. After the merger, the total tax liability of the consolidated company will be much lower than the tax liability of the independent company.
☞ Increases Goodwill
Merger helps the merged Company to boost its goodwill in the market. It creates goodwill by increasing the confidence of the shareholders of the merged Company and creating a good image of the merged Company among the customers.
☞ Other Miscellaneous Advantages
- Merger generates value of the merged company by accessing funds and assets to support its business growth and development;
- It helps a merged company to deal with the threats of multinationals companies (MNCs);
- It may prove beneficial to a struggling company by helping it to survive;
- It also assists to reduce redundancies observed in the business activities and/or operations.
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TEAM SIGMA LEGAL