Mergers and acquisitions, or M&A for short, involved the process of combining two companies into one to achieve synergy. Earlier, Anand Jayapalan had mentioned that mergers generally happen between two businesses of around the same size, that recognize the advantages offered by the other in terms of improving capabilities, efficiencies, and sales. On the other hand, acquisitions happen when one company buys another business and folds it into its operations. This purchase can be friendly or hostile, depending on whether the company being acquired believes it is better off as an operating unit of a larger venture or not.
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There are many reasons why M&A might take place, including:
- Synergy and cost efficiency: M&A can effectively create synergies that lead to improved cost savings and operational efficiency. Companies can eliminate duplicative functions, lower overhead expenses, and streamline processes by combining operations. Synergies may even arise from complementary capabilities, technologies, or expertise. With M&A, companies would be able to pool their resources and expertise to develop a stronger and more competitive entity.
- Growth and expansion: The desire for growth and expansion is among the primary drivers of M&A activity. Companies commonly seek opportunities for expanding its geographical presence, customer base, and market share. M&A can be a good way for businesses to gain access to new markets, customer segments, or distribution channels that would have otherwise taken a lot of time and resources to develop organically. M&A helps companies to accelerate their growth trajectory and capitalize on economies of scale.
- Diversification: Mergers and acquisitions allow companies to expand into new industries, product lines and markets, and hence lower their exposure to specific risks or market fluctuations. Diversification can play a major role in improving the stability of the revenue streams of a company and providing protection against downturns in a particular sector or geographic region.
- Vertical Integration: M&A can facilitate vertical integration. Under this, companies basically merge or acquire entities that operate in different stages of the supply chain. Vertical integration helps companies to control and streamline their entire value chain, right from raw materials to distribution. This ultimately leads to improved cost control, better coordination, and greater bargaining power with suppliers or customers.
- Access to new technologies or intellectual property: Acquiring or merging with businesses that possess high-end intellectual property, patents, or technologies is especially important in rapidly evolving industries. This would help companies to gain a much needed competitive advantage, improve their existing product offerings or enter new markets. Acquiring technology or intellectual property through M&A can significantly help in saving the time and resources that would have been required to develop these assets internally.
Earlier, Anand Jayapalan had spoken about how mergers and acquisitions can also provide businesses with access to skilled talent and human capital. Acquiring companies can seek to leverage the expertise, experience, and knowledge of the employees of the targeted business to enhance their own capabilities or enter new markets. M&A can also aid in addressing talent shortages or acquiring specialized skills that are in high demand.
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