Many companies today have become subject to mergers and acquisitions. The global environment has changed greatly making the market more complex than ever before. Business combination is used by different firms to achieve a variety of objectives for their operational needs. Many companies are finding it challenging to deal with the pressure brought by the existence of global consolidation of markets. It is possible to gain a presence in new markets which would otherwise be hard by using mergers and acquisitions as a step over. Having global reach has made many firms have the urge to combine with others in different parts to offer them a chance of servicing new markets. Business combination comes in a variety of options which makes it possible for firms to choose the kind of combination which fits well with their kind of business. The section below provides an outline of the essential benefits of having business combinations.
Some firms would want to combine with others in order to increase their production capacity at minimal cost. To deal effectively with competition firms consider merging as a way of reducing on the cost of production through economies of scale which would allow them to compete effectively. Cutting down on cost is an essential element for many firms in the market. Economies of scale ensures that small firms after combination are able to enjoy the benefit of having great output levels they could not have had before. Combined firms enjoy much savings in their business operations hence been able to deal effectively with rising levels of internationally established firms. The financial power helps them to lower the cost of production to great extent and become more completive in the market.
The business combination allows firms to have a presence in new markets without many investments. With combination a firm reduces the amount of investment in a new market as they use the already existing resources of the subsidiary and holding companies in their respective market. Some administrations have put measures in place to protect their own companies which makes it difficult to establish a firm in such markets without the use of business combination. Mergers and acquisitions are used to penetrate a large market by the parties to a merger.
Finally, mergers, and acquisitions provide a great opportunity for a firm to diversify to a wide range of production line to serve a variety of markets. With a wide variety of product lines a firm is able to protect itself from the effects of depreciation in one part of its product line. Different market segments pose varying challenges to a firm and therefore having a wide choice of market enable the firm to consolidate the value of the market.