Mergers and Acquisitions | Reasons for Mergers and Acquisitions

We see many MNCs undergo mergers and acquisitions activity. The reason behind it is listed below:-

Unlocking synergies

Creating synergies is the most common explanation for undergoing mergers and acquisitions in which the combination of two companies is worth more than individual companies.

Synergies are formed due to cost reduction or higher revenue, economies of scale. Revenue synergies are designed by cross-selling, and increase in market share.

Growth Prospects

The faster way for a company to grow and earn huge profits is through mergers and acquisitions. The company can merge with a company with the latest technologies and capabilities having no risk of failure.

Diversification

Companies in cyclical industries diversify their cash flows in order to avoid losses. A target acquisition in a non-cyclical industry allows a company to diversify and reduce market risk.

Tax Benefits

Where one company has significant taxable income while another has tax loss carryforwards, tax benefits are considered. When a company with tax losses is acquired, the acquirer can use the tax losses to reduce its tax liability. However, mergers are rarely done solely to avoid taxes.


Market Control
In the case of a horizontal merger, the merging MSME IPO company will gain a high market share and will have the power to influence prices. In a vertical merger, the company has control of the supply chain.
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