Be it a big industrialist or a small shopkeeper, every businessman dreams of expanding their business and taking it to the next big level. There are many ways to judge one’s business and how to increase its revenues and profits. One such efficient way is acquisition- where you can expand your business and spread it across various countries.
What Is Acquisition?
The process in which a company is being acquired to build on the acquiring company’s strengths and weaknesses. It is done to grow one’s business in a more profitable and quicker manner which would not be possible in case of normal organic growth. In an acquisition, two companies get involved and both retain their identity. None of the companies gets dissolved and is able to earn profits based on the shares. The companies may acquire economies of scale, greater market share, diversification, niche offerings, increased synergy and cost reductions.
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Reasons Why Companies Make Acquisitions
- It can be used as an effective way of entering the foreign market. The easiest way to enter the foreign market is to buy an existing company in that particular country as that company will already be having its brand name, intangible assets and its personnel. This will help the acquiring company with a solid base to start off well in the new market.
- It is a growth strategy for the companies. If the resources of a particular company is completely depleted or it is facing any kind of logistic or physical constraints, then the company’s ultimate strategy would be to acquire young promising companies. This is done to retrieve revenues from them and utilise it to gain profits.
- It can be used to gain new technology. It is a lot profitable for the acquiring company to “acquire” another company that is already technologically updated rather spending their own money and time to implement new technologies in business.
Advantages Of This Form Of Business Expansion
- In this process the growth strategy is very much time efficient as the acquiring company can make use of the resources and the technology of the other company. In this manner the company can immediately enter a new market and overcome the entry barriers without investing much effort and time in product development.
- Market synergy is provided by acquisition through building the company’s market presence quickly. The company can reduce competition and increase the shares in the market and build strong brand equity.
- The financial condition of a company can be improved in this process and will benefit the company, running in losses with short and slow term gains.
- The market entry barriers can be overcome in almost no time without much effort in product development and market research costs.
- The shareholders are able to gain more confidence in the company.
Disadvantages of This Form of Business Expansion
- A cost is linked with every acquisition and it can be higher at times. This may lead the acquiring company to take a higher depth and increase its equity ratio. The company may also fail to acquire if the synergies that were expected and not met.
- Shareholders may not get the expected returns if the acquisition demands more time and cost.
- Cultural issues may arise between the employees of the two companies if their expectations do not match
Thus, business acquisitions are good for a company but demand a lot of risks to be undertaken. To know more about this particular topic, you may get in touch with the finest essay writer service town. They will provide you with the proper set of guidelines, assuring you of quality and time to be met.
