Mergers and Acquisitions involve the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy — where the whole is greater than the sum of its parts.
Some of the benefits of M&A deals have to do with efficiencies and others have to do with capabilities, such as:
· Improved economies of scale. By being able to purchase raw materials in greater quantities, for example, costs can be reduced.
· Increased market share. Assuming the two companies are in the same industry, bringing their resources together may result in larger market share.
· Increased distribution capabilities. By expanding geographically, companies may be able to add to their distribution network or expand its geographic service area.
· Reduced labor costs. Eliminating staffing redundancies can help reduce costs.
· Improved labor talent. Expanding the labor pool from which the new, larger company can draw can aid in growth and development.
· Enhanced financial resources. The financial wherewithal of two companies is generally greater than one alone, making new investments possible.