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Why do companies merge or acquire other companies?

Whether or not one follows the world of business on a daily basis, most people have heard news stories about companies merging into a new business entity or one company acquiring another. But why do company owners choose to merge together or why does one company choose to buyout or acquire another? The key to achieving success as a business is to increase profits while keeping costs down, but a business also needs to establish itself as a leader in its respective marketplace. Through the use of mergers and acquisitions, business owners can achieve these goals and help ensure the business as a whole succeeds and places itself on surer footing for the future.

Whenever two companies merge, the resulting business typically does not require the same number of employees as the two companies needed individually. As a result, a certain number of positions can be eliminated because the new company will not need to have those positions duplicated. While this may not be great news for those former employees, the reduction in force means a reduction in overall operating costs.

Another aspect known as an economy of scale comes into play. A larger business typically has more buying power and can negotiate better prices and terms than a smaller business. Larger businesses can also usually scale up their production more efficiently, which means a reduction in overall costs and greater profit margins.

To stay competitive in any given marketplace, a business needs to be on the cutting edge of its industry. By acquiring a smaller company that has developed a new and innovative technology, a larger, more-established business can help solidify its place in the market. Likewise, buying companies in other markets helps increase a business’ market reach and distribution, opening it up to greater sales opportunities in other parts of the country or the world.

While these are just some of the reasons companies merge and acquire other businesses, the processes involved in mergers and acquisitions are typically complicated and complex. Any business owner who wishes to merge with or acquire another business should enlist the help of legal counsel. An attorney experienced in business and commercial law would be able to advise as to the best course of action and represent the business throughout all stages of the merger or acquisition.

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