Benefits Of Mergers And Acquisitions

Benefits of Mergers and Acquisitions are manifold. Mergers and Acquisitions can generate cost efficiency through economies of scale, can enhance the revenue through gain in market share and can even generate tax gains.

Benefits of Mergers and Acquisitions are the main reasons for which the companies enter into these deals. The main benefits of Mergers and Acquisitions are the following:

Greater Value Generation
Companies go for Mergers and Acquisition from the idea that, the joint company will be able to generate more value than the separate firms. When a company buys out another, it expects that the newly generated shareholder value will be higher than the value of the sum of the shares of the two separate companies.

Mergers and Acquisitions can prove to be really beneficial to the companies when they are weathering through the tough times. If the company which is suffering from various problems in the market and is not able to overcome the difficulties, it can go for an acquisition deal.

If a company, which has a strong market presence, buys out the weak firm, then a more competitive and cost efficient company can be generated.

Here, the target company benefits as it gets out of the difficult situation and after being acquired by the large firm, the joint company accumulates larger market share. This is because of these benefits that the small and less powerful firms agree to be acquired by the large firms.

Gaining Cost Efficiency
When two companies come together by merger or acquisition, the joint company benefits in terms of cost efficiency. A merger or acquisition is able to create economies of scale which in turn generates cost efficiency. As the two firms form a new and bigger company, the production is done on a much larger scale and when the output production increases, there are strong chances that the cost of production per unit of output gets reduced.

Mergers and Acquisitions are also beneficial

• when a firm wants to enter a new market
• when a firm wants to introduce new products through research and development
• when a forms wants achieve administrative benefits

Mergers and Acquisitions may generate tax gains, can increase revenue and can reduce the cost of capital.