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Why so many mergers in the business world?

What is exactly is a merger? A merger is when two completely separate corporations dissolve to become one new corporation. The previous companies' assets and liabilities are merged into the new entity. An acquisition, on the other hand, is when one business takes over, or buys out, another business.

Mergers and acquisitions have been on a steady increase across the world in the last couple of decades. What would cause such an increase in these mergers? There are many reasons.

For one, raising capital. Initial public offerings of shares is always risky for a business due to its unpredictable nature. Therefore, a merger or an acquisition sometimes appears to be a better choice. A merger or acquisition can provide needed capital and can often be more lucrative in the long run.

Customer base is another reason. Merging with another company with similar or complementary products or services enhances the customer base. Merging of products and services also helps to provide future customers more options in products and services, thus, growing revenue.

Product growth and development is another good reason for mergers. Developing new products is not always easy, or a luxury some businesses can afford to do on their own. Without product growth and enhancements, a business may be left behind. Mergers or acquisitions are a profitable way to extend and diversify a companies' offerings.

Is there a downside to merging? Merging companies can be very complex. The process takes time, money and hard work to put together. There are also legal issues to decipher, tax complications, and very often, cultural differences to overcome. However, a commercial business attorney will be experienced in helping to deal with these types of obstacles, and it may be well worth it in keeping your business in the market.

Source: Small Business Notes, "Why Merge?," accessed Nov. 22, 2016

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