Why Companies Merge With or Acquire Other Companies?

There’s a lot more to business than just registering a company in Singapore. There is always competition to stay at the top of the industry. Nevertheless, there will always be companies more successful than others.

Businesses grab any opportunity they can — to succeed and stay ahead of the pack. One of those opportunities include merging or acquiring other companies.

However, there are many reasons why two or more companies in Singapore can decide to merge or that one company would want to acquire another.

But the main motivation behind merging and acquisition is usually because one company sees value in another and wants to leverage on the value of that company.

If you have plans to acquire or merge your company with another, with the help of an audit firm in Singapore, you can find valuable companies that would bring a good return on your investment in the long run.

So, below are the reasons why companies merge with or acquire other companies.

 

1. Growing the Company

The major goal of every company is growth. And, one of the easiest ways to grow a business is through mergers or acquisitions.

A company can decide to avoid the work required to increase market share and simply purchase or merge with a competitor. This is known as a horizontal merger.

Growing a business through a horizontal merger is done if the company intends to break into a market where the other company has already found a desired level of success.

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2. Increase Supply-chain Pricing Power

A company can completely take out an entire tier of cost by buying out one of its suppliers or distributors. This is known as a vertical merger.

It allows a company to save on the margins the supplier was previously adding to its costs. So, when the company buys out a distributor, it gains the ability to ship products at a lower cost.

 

3. Eliminate Competition

Mergers and acquisitions also help the buyer to remove the competition and gain a larger market share.

The downside is that a large amount is usually required to convince the shareholders of the company to be acquired to accept the offer.

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4. Tax Benefits

Merger and acquisition deals are also done to enjoy attractive tax incentives in Singapore. For instance, if one of the companies involved in a merger is faced with a net loss, the profits of the other company can offset the loss.

Of course, this is only beneficial to the company with the losses but will also be beneficial for the other company if the merger will bring about future gains. When two companies agree to merge, it could also be a solution for lowering their tax burden.

For instance, if the bigger company is located in a country that has a high corporate tax rate, they can decide to merge with a company located in a country with lower rates. Although this strategy is usually criticized, it is still very effective in lowering company taxes.

 

5. Surviving

Even though it’s not easy for a company to give up its identity to another, sometimes, it is the only option if the company must survive. Many companies used mergers and acquisitions to grow and survive the global financial crisis from 2008 to 2012.

During this time, many banks merged to deleverage failing balance sheets that may have put them out of business.

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6. Diversifying Business Interests

Intensifying focus and diversification are other reasons for mergers and acquisitions. For instance, a company that has a goal to diversify may buy off another company in a different niche to increase overall profitability.

On the other hand, if the goal is to intensify focus, the company can decide to merge with a company in the same niche that has better success in the market.

 

Takeaways

When it has to do with accomplishing a company’s long-term goals, buying out or merging with another company can be a very good investment.

However, before deciding on merging or acquiring another company, carry out a proper business valuation to determine the economic value of the company you intend to buy or merge with. Want a professional’s oppinion? Get in touch with us.