From the strategic point of view the main motive behind a merger or acquisition is to improve the company’s performance for its shareholders through, which is a concept that states that the value and performance of two companies combined will be greater than the sum of the separate individual parts. Two businesses can combine to form one company which can generate more revenues that could be done if they worked independently. This is why potential synergy from merger and acquisition is evaluated before the decision is made.



Mergers or acquisitions can exponentially increase the growth of the company, as it has more resources at its disposal. When two companies combine their expertise, assets and market share are also combined, which leads to more opportunity in the market for growth. The market share which was previously shared by two companies will now exclusively belong to one company. The increased market power is likely to generate more opportunities for sales, revenue, and profitability.


Acquiring Unique Capabilities

Sometimes, mergers and acquisitions take place in order to acquire unique capabilities or resources, which could prove paradigm shifting for the company. This would include patents and licenses, which the acquiring company will gain access to once the merger is completed. A patent or certain technology could make a lot difference for the company, which could help it substantially increase sales and profits, since it might create a natural monopoly situation for the new company. When two different companies combine, it could also result in unlocking hidden value, which becomes apparent as resources and experiences combined bring and efficiency.


Exploiting the Market

Market systems in most economies are not perfect, which means there is room for companies to exploit these imperfections to their own advantage. Taking over another company or merger could facilitate a monopoly-like situation, which would give the company an edge over its competitors. Alternately, a merger could be done with a motive to control the which will give the company an undue advantage over other companies.


As an Answer to Government Policies

Mergers and acquisitions also take place in order to cope with adverse government policies, which may require a certain size of a firm to exist. Some governments offer tax breaks and other incentives to large corporations, which encourage mergers as more profit can be made as tax liability is lower. In order to deal with government pressure to survival within an industry, companies mergers and acquisitions have greater leverage to influence government policies.


Transfer of Technology

Another popular reason for mergers and acquisitions is transfer of technology, especially for highly specialized companies with unique technologies. Companies buy other companies in an attempt to acquire a certain technology which is patented or unique. Subsequently, these technologies are used to make better products/services, hence greater market share and profits.


To Handle Large Clients

Mergers and acquisitions, especially in the service industry, also take place in order to follow big clients. There are a lot of examples of such M&A activity happening for law firms, since sometimes the clients are so big, it forces firms to merge in order to serve them better. The merged firms have more resources and expertise to handle powerful clients. It also gives companies a way to bootstrap earning, hence better performance at the stock exchange for listed companies.



Mergers and acquisitions allow companies to diversify into other areas of business, hence it spreads risks and present opportunity for more sales, profits and recognition in the market. For example, if clothing store merges with a textile company, it would help both companies, since they would be able to keep a greater margin of profit. Diversification can also take place in a totally different industry altogether. For example, if a restaurant chain store acquires a clothing store, it would have reduced its risks, since even if people stop eating out, hypothetically speaking, they could still make money from the clothing store, and other way.


Personal Incentives

In some rare cases, a merger or an acquisition is initialised due to managers personal incentives in form of higher salary, benefits etc., and has nothing to do with strategic planning.

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