As your business grows, you may find that acquiring another company is the next step forward. Such an impactful decision must always be heavily debated to understand the pros and cons, although, for many, the benefits will outweigh the drawbacks:
1. Increased market share.
As a business grows and acquires the competition, its reach and overall market share expand. With fewer competitors in an industry to choose from, the more likely a customer is to use a specific business (especially since they’ve proven their success as they grow).
2. Diversification.
Because no two businesses are exactly the same, acquiring a business can offer the original company revenue diversification. For example, if one company specializes in selling golf balls to golfers, while the other company sells golfing apparel, the target market is diversified, and revenue comes from multiple sources (becoming less risky).
3. Economies of Scale.
Typically, the larger the company, the more money they have. As resources and materials are bought in higher quantities, cost breaks start to build and make a bigger impact. These volume incentives might not have ever been reached without a merger to increase capital access (whether through loans or simply profit).
While acquiring a business can be a great move for some organizations, it needs to be analyzed in every aspect that it will affect the company. With this extensive breakdown, your organization can be prepared for the upcoming changes it will go through as it merges with a potential business.