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The Benefits Derived Through M&A

By Ronald Ward

The business world has been growing very fast over the years. This has brought about developments in many firms as they try to adapt to the changes taking place. M&A have been found to be very effective in terms of promoting efficiency through economies of scale. This brings about high revenue collection by the firms and the cost of running them is minimized. Firms are therefore able to survive in the highly competitive markets where they operate.

Firms have many reasons that drive them to merge up with other competitors in the market. One reason why a merger may be formed is when the firms want to expend their capital base. In this case, the joint venture allows all the shareholders who had contributed to the parent companies to give their support. More funds are therefore collected helping the firms to initiate new investment decisions.

This method is also important for marketing strategies. In an event one firm is undergoing difficulties in marketing its products in a new market; it can use the reputation of a known company. This will aid in promoting the sales where buyers buy more. This in return brings more revenues to both companies that are involved in the production of goods.

When two companies join up to produce a particular product, the total cost per unit is reduced. The economies of scale are lower since production is done on a large scale and the technology used is similar. This enables more production and the cost is maintained at a level where maximum profits are reaped. Firms are therefore able to enjoy better profits in the long run and short run stages.

Mangers in individual firms often feel that they pay very high taxes to the proceeds they make every year. The reason why two or more small companies may come together is to earn high revenues which attract a considerable low tax rate. More money is saved after the tax has been deducted and can be used to pay the shareholders high dividends. This encourages the firms to continue expanding their production capacity.

It is possible to use a more expensive technology to produce goods of high quality. Joints firms share their idea and skills in generating the products they deal with. The best technology can therefore be adopted to generate these products which are sold to a large market. The unit cost is reduced in the process.

The market share taken up by a joint company is greater than that owned by individual firms. This is a reason why managers opt to merge their firms in markets dominated by many competitors. This will enable their products to sell more at maintain prices which will give them better profits. When companies come together, they are able to carry out market research on the nature of products which consumers want hence enough supply is done.

Over the years, merging has been known to benefit the company itself. Employees also stand a chance of gaining from this kind of decision. This is where some are moved to higher ranks of management to the new business entity. In some cases, the employees get a reward through better pay which improves their welfare.

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