A merger can potentially help your business. However, this must be under specific circumstances; success is only sometimes guaranteed. Given mergers involve two or more businesses combining their operations to form one entity, you need to know a few things first. Below are ways a merger can help improve synergy and increase efficiency to ensure increased competition and overall profits.
1. Yes, Through Access to New Markets
If your business is struggling to stay afloat, a merger with a strong company can help. A stronger, smaller company has a robust market presence, distribution networks, a larger customer base, and access to new markets.
2. Yes, Through Cost Savings and Economies of Scale
The Harper James Solicitor explains that when two businesses dissolve their individuality and form one business, that’s a merger. The two businesses consolidate their funds and resources to improve efficiency and reduce overhead costs. Besides, a merger can help a business save on costs by harmonizing duplicate functions, restructuring operations, and providing economies of scale.
3. Yes, Through Financial Stability
When a struggling business merges with a financially strong one, the solidified financial position allows access to credit and capital. Let’s assume, for instance, that your business is recovering from an electrical fire incident that razed down part of your warehouse. This isn’t a farfetched assumption since, as the Electrical Safety Foundation International reports, 5,300 electrical fires occur annually. In such a scenario, merging with a strong company would benefit your company. You’ll have easy access to loans to finance the rebuilding of your factory.
4. Yes, Through Enhanced Resources and Expertise
A merger may also improve business for the two companies as it gives both access to a wider pool of talent, networks, resources, and expertise. This may lead to improved innovation and effective problem-solving competencies.
The merger of resources also helps improve various factors, such as security for both companies. Forbes reports that over 4 billion data breaches were uncovered in the first half of 2019. However, when a merger happens, the company normally upgrades its security, and for some, this is very beneficial. The merged entity is more likely to invest in superior data security methods.
5. Yes, Through Competitive Advantage
When businesses merge, their strengthened market position and combined resources give them a competitive advantage. Before the merger, each entity competed independently; now, they’re competing against others from a position of strength. They have more resources, networks, finances, staff, products, and services. A merger can help your company stabilize, even if it is fledgling.
6. Yes, Through Diversification
A merger can help a business diversify its services and products instead of relying on one product or market. This helps them overcome economic downtimes and changes in customer preferences.
However, it may also not work as there are potential challenges and risks associated with mergers, such as the following.
Integration Difficulties and Cultural Differences
As much as a company may want to merge to stay afloat or have a wider network, integration issues may sometimes be difficult to surmount. Each company has its values, missions, vision, and way of doing things. Failure to successfully manage integration may lead to loss and disruption of productivity. Besides, different work cultures may hinder collaboration, bringing about internal conflicts in the business, even among the workers.
Regulatory and Legal Hurdles
At times, mergers may take time to conclude due to regulatory scrutiny, which is compulsory. Issues may come up that could affect the deal. Also, obtaining the necessary approvals could take a long time. The merger may also prove to be too costly to pull off. Some of the costs include legal fees, restructuring, and consultancy services. If a business struggles financially, dealing with the extra expense could take it down the bankruptcy road or worse.
Unforeseen Challenges
As much as you may want your business to be successful, there are various external factors, such as the economy, and altercation in the market, which may affect the merger’s success.
For a merger to succeed, there’s a need for proper planning, meticulous execution, a well-defined roadmap and vision, and effective integration. If you’re considering a merger for your company, conduct in-depth research and do due diligence on the proposed merger partner. Seek credible advice to expose potential risks and rewards. Don’t rush to make a decision. It’s good to be well-informed before making such a huge step, even when your company is struggling.
