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Acquisitions – A Strategy To Expand The Business!

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“Acquisitions – A strategy to expand the business” sounds good. But what are acquisitions? How does it work? What are the advantages and disadvantages of acquisitions? Why the company made acquisitions?

Does it help a company? Are acquisitions easy to make for a company? What are the qualities which make it a business expansion tool? All these questions and others related to acquisitions you’ll get here. We recommend to don’t miss a single line of this article.

So keep maintaining your curiosity.

Acquisitions, which are very common in business, may occur with the target company’s approval, or in spite of its disapproval.

We mostly hear about acquisitions of large well-known companies, we should know the exact meaning of acquisitions, which means when one company purchases most or all of another company’s shares to gain control of that company.

Growth through acquisitions (a strategy to expand the business) is a very prevailing strategy among various. It is not as easy as it seems. It brings a lot of challenges for an organization.

But one can achieve various benefits from acquisitions by its successful implementation. It provides a lot of benefits which are outlined below. And these benefits make acquisitions very popular and productive for businesses.

Companies made acquisitions with the primary goal of “Business Expansion” but the word growth doesn’t depend on a single factor, that is it depends on a lot of factors that give proper growth to the company.

Acquisitions provide various benefits, it includes :-

1. Provide Synergy Benefit.
2. Economies of Scale.
3. Acquisitions Help in Diversification.
4. New Niche Offerings
5. Enhance Market Share.
6. Acquisitions Reduce Cost.
7. It Reduces Entry Barriers.
8. Acquisitions Reduce Excess Capacity and Decrease Competition.
9. Acquisitions Provide Fresh Ideas And Perspective.
10. Used To Gain New Technology

Let’s discuss these reasons clearly :-

1. Provide Synergy Benefit.

Synergy benefit is the benefit that is obtained by the acquiring company after acquiring the target company. When the company formed after an acquisition is capable of producing more revenue than their independent revenue then the acquisition is considered positive otherwise negative

2. Economies of Scale.

Economies of scale are cost advantages and it is achieved through production efficiency. The company formed after acquisitions, the production increases automatically of that company. The instant increase in production forms the possibility of lowering the costs and helps to achieve the economies of scale.

3. Helps in Diversification.

Firms acquire other companies to lessen their risk or volatility. The company formed after acquisition has more options to allocate their capital and it helps to maintain the shareholder’s credibility in such a way that they can expect that if a particular operation hits by the market over a particular span, other operations can give them their expected returns.

And hence, we can say that diversification also helps to company growth as it influences the shareholders.

4. New Niche Offerings.

When one company acquires another company, it expands the acquired company market which adds a new niche to the existing and enhances the business growth.

5. Enhance Market Share.

Market share increases when a company expands it through acquisitions. The acquisitions provide a new market(geographically) with new customers which increase the demand for the commodity of that acquiring company, increases the market share.

6. Acquisitions help to Reduce Cost.

By being able to purchase raw materials in greater quantities, for example, costs can be reduced. It can reduced labor costs as it can eliminate staffing redundancies which can help to reduce costs too.

7. It Reduces Entry Barriers.

If a company wants to expand its operation and planning to enter a new market then there are lots of barriers present to discourage the company. Barriers like government policies of that particular market, distributed channels, switching costs, capital requirements, product differentiation, economies of scale, switching costs may encounter a business while operating into a new market.

Buying an existing company in that market could be the easiest way to enter a new market. The purchased business will already have its personnel, a brand name, and other intangible assets, which could help to ensure that the acquiring company will start in a new market with a solid base.

Trying to do this on your own would be challenging because it can take time to effectively penetrate a market that you have no experience with.

8. Acquisition Reduce Excess Capacity and Decrease Competition.

Companies also go for acquisition when there is too much competition or supply. Acquisition helps to reduce excess capacity, eliminate the competition, and focus on the most productive providers.

9. Acquisitions Provides Fresh Ideas And Perspective.

The acquisitions bring together the team of experts and knowledgeable personnel of acquiring and target company which provides fresh ideas and perspective and helps for company growth. It makes operations efficient and enhances company stability.

10. Used To Gain New Technology.

If a company wants to develop some new technologies itself to expand its operation, it would cost high. But acquisition can solve this problem as it is more cost-efficient for a company to purchase another company that already has implemented a new technology successfully than to spend the time and money to develop the new technology itself.

So, these are the benefits of acquisition which helps to grow a business and enhance business stability. But the words “Growth Through Acquisitions” don’t provide results as they sound when it implements in a directionless manner. There are some challenges associated with the acquisitions which lead to negative results.

It includes :-


1. Puts Pressure On Suppliers.
2. The Loss Of Team Mentality.
3. It May Create Duplication.
4. Poorly Matched Business.
5. Creates Culture Clashes.
6. It Reduce Differentiation Within The Market Place.

Let’s discuss these reasons clearly:-

1. Puts Pressure On Suppliers.

As a company made an acquisition, the size, employees, production, customer base and as well as responsibility of the company to serve better to the existing and new customers increases. This may increase the responsibilities to the suppliers and which may turn into pressure if it goes over.

2. The Loss Of Team Mentality.

The culture of the target company is usually about a sense of being a team. That psychology motivates the employees going as they do the hard work of building the brand. When the company purchased by another company it affects that mentality of employees.

In a buyout, it’s generally just the owners who become rich, most employees don’t receive a life-changing amount of money. So acquisitions talk can erase the team mentality almost overnight.

3. It May Create Duplication.

Another problem acquisition may create is ‘the duplication of activities’. When two similar businesses combine, there may be cases where two departments or people involved in the same activity which can cause excessive costs on wages.

Most of the time the management cuts the job to maximize efficiency which can reduce employee morale and lead to low productivity.

4. Poorly Matched Business.

When a business decided to combine with unsuitable business due to lack of efficient evaluation of business may end up targeting a company that brings more challenges to the equation than benefits.

This can deny an otherwise productive company the chance to grow. Also, it may provide the results against the acquisition.

5. Create Culture Clashes.

Usually, every company has its own distinct culture that has been developing since its inception. If a particular company planning to acquire another company to expand its operation then both should be the same culture.

Acquiring a company that has a culture that conflicts with yours can be problematic. Due to the cultural clashes integration would be complex to achieve among the personnel.

6. It Reduces Differentiation Within The Market Place.

The acquisitions benefit businesses because it opens up new lines of potential profit. But not good for consumers because prices tend to rise, the quality of products or services may degrade, and a brand can even dilute itself.

CONCLUSION

The achievement of a strategy mainly depends on its successful implementation. Acquisitions – A Strategy To Expand Business seems very easy but it demands careful and focused implementation.

Acquisitions can improve and support the long term development approach but the success of acquisitions depends on its proper conduction.

The success of acquisitions depends on the strategies of the Board, the flexibility of negotiation period and enthusiasm of parties, but they could reach the target if they are well prepared and target to conduct acquisitions successfully.

Acquisitions made by companies play a key role in the company’s growth. So we can say that acquisitions made the business grow in magical ways, but it brings some challenges.

And if the company’s top-level management can confront all the challenges properly and able to sort out efficiently then acquisition only provides a better way to grow a business.

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