The Pros and Cons of Merging a Business
When deciding to merge multiple businesses together is the right move for you and your companies, it helps to examine the pros and cons of mergers. Understanding what’s at stake and the potential advantages your decision can have will help you choose the right option for your business. Let’s take a look at the pros of merging a business first.
Pros of Merging a Business
1. Mergers Can Minimize Competition
One of the biggest advantages of merging two companies, especially if the merger is a horizontal or vertical one, is reducing competition. When two companies that operate in the same industry or offer the same product or service join together, they no longer work against each other but instead work together. The merged companies, acting as a single, larger entity, can then claim a more substantial portion of the market they operate in than they would if they continued to operate as separate businesses.
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Although at first glance, it might seem that a reduction in competition would only benefit the two merging companies and not the customers they serve, that isn’t always the case. For example, if two competing cell phone network companies merge, customers can take advantage of a larger network that offers more coverage compared to the two network companies on their own.
In some cases, reduced competition means streamlined services. If two transportation companies merge, there might be fewer buses on the road at any one time. But that can also mean there is less congestion and less confusion for passengers, allowing them to get where they need to go with greater ease.
2. Mergers Can Save Money
Mergers can mean a reduction in costs, saving businesses money in the end. When two companies merge, they often no longer need to rent two separate office spaces, for example. They can combine marketing efforts to save money on advertising and other forms of promotion. Depending on how the companies are restructured after the merger, it can mean a reduction in the cost of staffing as redundant positions are combined or otherwise eliminated. Reduced costs can allow companies to reduce their prices which benefits customers and allows the company to expand further with increased competitive pricing.
3. Mergers Can Improve Efficiency
Merging two companies can diminish redundancies and improve efficiency all around. For example, when two or more companies merge together, there is no longer the need for each to have its own marketing department, its own research and development department, and so on. The departments can join together to work toward a common goal.
4. Mergers Can Increase or Grow a Company’s Customer Base
Company A might have reached customers in one age bracket or demographic while Company B connected with customers in a completely different age bracket or demographic. When the companies come together, Company A gains access to Company B’s customers and vice versa. The merger can allow a company to tap into a new customer demographic without having to do the legwork usually required, such as research and marketing.
5. Mergers Can Introduce a Company to a New Market
Let’s say Company A serves customers in one part of the U.S. while Company B has worked with customers in another part of the U.S. Usually, setting up in a new market means a company has to undertake a considerable amount of research beforehand, including:
- Looking for employees
- Finding a location for an office or headquarters
- Putting out marketing feelers to determine if that market is ready for the service or product offered by the company
But when two companies that serve different areas merge, there’s no need for extensive research, as Company B already has a track record of reaching customers in the area not served by Company A.
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6. Mergers Can Increase Business Intelligence
When two companies merge, each one can take advantage of the experience and intelligence of the staff at the other. For example, Company B has developed an effective way to retain customers or to follow up with customers after an initial sale, increasing the chance of a repeat sale. Instead of having to do its own investigation, Company A can use the method developed by Company B after the merger.
Additionally, a merger can introduce the two companies to new ways of approaching or thinking about problems. Issues that might have confounded Company A might resolve after a merger with a recommendation from a person from Company B.
The Cons of Trying to Merge and Acquire a Business
Although a merger can offer many benefits to a company, it isn’t without its disadvantages. Take a look at some of the cons of combining businesses.
1. Mergers Can Create Culture Clashes
One of the biggest concerns business owners have when merging two companies is how the cultures of those companies will mesh together — or not mesh together. Culture clash can be common after a merger, especially if the two businesses have very different ways of managing employees or different expectations when it comes to employee behavior.
While culture clash can interfere with a merger or make things particularly challenging after companies combine, it is not inevitable. Businesses concerned that there might be some difficulty managing or combining expectations can take steps before the merger is final and afterward to help their teams get used to new rules and expectations. Being prepared for downsides in an acquisition is an important factor to plan for.
2. Mergers Can Cause Employee Shake-Ups
Even before an announcement that companies are merging, employees can get skittish and nervous about their jobs. In some cases, their apprehension is justified, as a merger can eliminate positions when employees at both companies end up being laid off. But in most cases, the combined companies want to keep their employees.
In the interim, fears of a merger and the effect it might have on employment can interfere with employees’ ability to do their jobs. A business might see a drop in employee productivity as people fear for the future or feel less motivated to work for the company. In some cases, employees might decide to move on and find work elsewhere, meaning a company ends up losing most of its core team in advance of a merger.
3. Mergers Can Mean More Liability
Depending on the number of debts owed by the companies coming together, a merger can mean an increase in overall liability, which can interfere with the newly created company’s ability to get more or new credit. The increased liability might cause initial difficulties to overcome but the increased time and efficiency will ensure the effective growth of both of your businesses.
Weighing the Pros Vs. the Cons of a Merger
Any time you make a decision in business, there are going to be benefits and drawbacks. The critical thing to do is to examine the pros and cons of your choice carefully and determine whether the pros outweigh the cons or the cons outweigh the pros.
In the case of merging businesses, the benefits often outweigh the disadvantages. Most of the cons of a business merger can be overcome or managed with careful advanced planning. For example, you can take steps before the merger to help your company’s cultures come together rather than clash. If either of the businesses is in debt, they can work on reducing the amounts they owe before a merger so that each one is on a sturdier financial footing.
The benefits of mergers often emerge in places you don’t expect. Innovation flourishes when two companies come together. A business merger can lead to the development of new products or services.
For example, before merging, Company A might offer one product and Company B another. After a merger, the new company might realize it can blend two separate products into one to better meet the needs of customers. Or it might be able to take components from each of their products and combine them to produce something entirely new. These pros make a strong case to consider business mergers.
Merge and Acquire New Businesses with the Help of Synergy Business Brokers
If you are looking to grow through mergers and acquisitions please view our businesses for sale. If there is a business of interest fill out our electronic NDA for more information. We’ll help you through the process and guide you along the way. Get the merger process off to an excellent start and reach a deal that benefits you. If are interested in having your company be acquired, Contact us today!