A merger is a transaction during which two business entities join to form a third one, while an acquisition is a transaction in which one company buys another one. While the two types of transactions are different in many ways, the motivations and reasons behind them can be very similar – here are some reasons identified by some of the best business brokers in the area:
- Diversification and access to new markets – a merger or an acquisition transaction might be undertaken by the participant companies to enter new markets or to start offering new products and services. Typical examples are when a large conglomerate acquires a smaller business that has a very strong position in a niche with lots of potential for growth or when two companies join to provide products and services that complement each other;
- Obtaining assets – another common motive behind these transactions is to gain access to assets, technologies or know-how that would otherwise be too difficult to obtain or the development would take too long to accomplish;
- Achieving increased financial capacity – a merger and acquisition might be undertaken to create an entity with higher financial capacity than previously. That higher capacity might be used for facilitating further business development;
- Cutting costs – the new entity formed after a merger can often operate in a way that is more streamlined and more efficient than the initial formations.