Five Common Reasons Businesses Acquire Other Companies

By September 22, 2018 Insights

Mergers and Acquisitions (M&A) have become a commonplace strategy for lower middle market companies today — and many times, the transaction (such as a merger, acquisition, purchase of assets or consolidation) is a critical turning point in a company’s life.

While the intention is unique to every organization, it is based on the idea of creating more value. Buyers look to drive growth, with sellers often focusing on wealth maximization, a need to monetize business or sell-off ancillary divisions to focus on core business units.

Here are five of the most common reasons businesses merge with or acquire other companies:

1. Creating Synergy — Synergy is a frequently used term in the world of M&A, referring to the idea that two heads are better than one. So, a business will acquire or merge with another business that has complementary strengths and weaknesses, whereby performance and cost control can be increased.

2. Support Expansion & Growth: Companies earn market share over time, but it can also be acquired as an intended by-product of many M&A deals — such as a horizontal merger. This also helps expand geographic reach, increase industry expertise or invest in capabilities, technology, talent and new assets.

3. Eliminate Competition: Companies seeking to sharpen focus often merge with companies that have deeper market penetration in a key area of operations. So many M&A transactions allow the acquirer to eliminate its competition within the market or product category.

4. Helping Diversify: Companies will merge or acquire a business in an outwardly unrelated industry to help manage risk and reduce the impact of a particular industry’s performance on profitability.

5. Enhance Supply-Chain: Businesses that work with many suppliers or distributors will participate in a buyout, acquiring one of their providers of materials or a distributor to help eliminate costs, such as supplier margins or shipping costs.

While success can happen organically, M&A drives the greatest growth among lower middle market companies — and M&A may be a beneficial strategy for taking your company to new and exciting heights. Contact the Auctus Group to learn more about M&A and other advisory services it provides clients.

Auctus exists to help businesses identify opportunities and navigate their way through M&A transactions to achieve favorable outcomes, maximize value and create steady growth.

Whether our client is public or private or selling a business unit or the entire company, we have a passion for what we do and dedicate senior bankers to every transaction from start to finish. In addition, Auctus offers hands-on experience within corporate development, venture capital and growth equity investing.