The term "merger" has long been part of the business vocabulary.
Throughout the years, businesses have merged as a means to diversify, expand, access additional resources, facilitate sales, or even as an exit strategy.
In simple terms, a merger is when two or more companies combine to form a single new company or unite their operations.
This article delves into the importance of mergers and what they bring to your business.
Enhanced market presence
Mergers enable businesses to enter new markets or strengthen their presence in existing ones. This can be particularly beneficial for companies looking to expand their reach without the slow and costly process of organic growth.
The Exxon and Mobil merger in 1998 is a clear illustration of this. The two leading U.S. oil producers combined in an $80 billion deal. Since then, investors have seen a 293% increase in shares with reinvested dividends, making it one of history's most successful mergers.
Reduced cost of operations.
When companies merge, combining resources and operations reduces costs. Costs are reduced by eliminating overlapping roles such as administration, marketing, and research, streamlining operations.
Instead of seeking external sources, pooling resources together is more cost-effective. In a merger, merged companies can share resources, such as technology, intellectual property, and labor.
Reduced market competition
This allows the merged company to have more influence over pricing in their industry. With fewer competitors, they may face less pressure to lower prices or engage in price wars. This can potentially lead to higher profit margins as the merged company gains more control over pricing, making it a more attractive proposition for investors and stakeholders.
To form the American Airline Group, In 2013, the merger of American Airlines and US Airways resulted in a reduction in the number of major U.S. airlines, giving them more control over pricing in various markets
Diversification as an advantage of a merger refers to the ability of a company to expand its range of products, services, or business segments by combining with another entity.
For instance, consider Disney, a renowned entertainment conglomerate. Disney recognized the need to diversify its content offering and acquired companies like Pixar, Marvel, and Lucasfilm. These acquisitions expanded Disney's portfolio to include beloved franchises like Star Wars and the Marvel Cinematic Universe, broadening its appeal to a more extensive and diverse audience.
Synergy and Innovation
The desire for reinvention seems to arise most often when companies hear the siren call of synergy and start to expand beyond their core businesses," as James Surowiecki wisely noted. Mergers, as they bring together companies with complementary skills and expertise, foster innovation.This collaboration can spark creativity as well. By combining strengths, new products or services can be developed, providing a unique market advantage, enabling businesses to address evolving customer demands more effectively.
In conclusion, contrary to traditional viewpoints, mergers are not proof of weakness, neither is it an action borne out of cowardice, rather is a system of business sustainability: placing priority rather on the life and longevity of the business than selfish ego.
Welcoming business merger holds a wealth of advantages for entrepreneurs and business owners. These mergers serve as springboards for renewed vitality, continuity and innovation.
There are several processes involved for making a successful merger, of which could not be addressed in this article.
We'll however delve deeper into this at The Business Summit scheduled for February 15, 2024. You'll have the opportunity to personally learn these and examine your business strength to know if a merger would be the turn around for your business. Mark your calendars and ensure your schedule is clear for this valuable event.