The potential benefits of a merger

The potential benefits of a merger

| Mar 23, 2021 | Business Formation & Planning |

Merging with another business can have important benefits business owners considering a merger should be familiar with. They should also be familiar with how business law can help any company through the merger process.

Potential benefits of a merger

Penetrating a new market: one possible benefit of a merger is to penetrate a new market. This may mean expanding to a new geographical area or entering a new niche market. One business may have identified a need in the market and may wish to fulfill that need. They may want to merge with a similar business looking to build its market share.

Better fulfill consumer needs

Another possible benefit of a merger is for both of the merging companies to better serve their existing customer bases. Two companies providing non-competing services, for instance, may want to merge to be able to provide customers of both companies a single stop for the goods and services the two companies provide to meet all the needs of their customers.

Product innovation and development

Another benefit of a merger can be to minimize risk. Developing new products can be expensive and risky. In a merger situation, a smaller company can minimize that cost and risk by merging with a larger company and can benefit from the larger company’s research, finances and greater resources. The larger company can benefit from products in development.

Human capital and talent

Companies can also benefit in a merger by merging together the human capital of each company and the talent and leadership of the companies that are merging.

Improve financial power

When two companies merge, their overall revenue increases; the company that remains after the merger will be stronger financially and better able to obtain credit and attract investors and strategic alliances. A merger can also create a positive cash flow and better credit scenario for the resulting company if it seeks a loan or other financing.

Mergers can happen, and may be beneficial, in a variety of different settings including when a smaller company merges with a larger company or when two large companies join forces. All of these benefits are possible when two companies merge which is why merging companies should consider the legal intricacies of a successful merger.