If you are planning to expand your business, then you must have come across two terminologies, merger and takeover. Both these terms are an efficient source of enlarging business operations without spending much capital. However, a lot of times, people get confused about whether to opt for a merger or company takeover to reach out to a larger audience. In case you are also hanging in the dilemma of merger and company takeover, this blog will guide you to choose the best option.
What is a Merger?
The merger is the union of two or more entities into a single legal entity which often possess a new name. Mergers avail a company to share its resources with another company. Thus, strengthen the organization in terms of resources and capital. In some of the instances, a merger takes place to increase the business operations in a different region. The merger is the best way to enter into a new industry. When a small company merges with a well-established company, then it becomes easy and less risk-driven for that company to engage in the trending junctures of the competitive market.
Advantages of the Merger
A company gains an array of benefits through a merger. Some of the advantages of the merger are as follows:
Merger helps a company to grow in the economies of scale,
It increases the sales revenue and the company’s market share in the industry,
Also, merger boosts tax efficiency and broadens the merged company in regards to diversification.
Furthermore, a merger is beneficial to reduce cost and increase profits.
It elevates the shareholder’s value in both the companies involved in the merger.
Types of Merger
Extensively, there are three different types of mergers from which the companies can make a choice:
Horizontal Merger- The horizontal merger is that wherein, two companies merge who belongs to the same industry. This type of merger helps in reducing the level of competition within an industry. For instance, if two popular brands of soft drink, Coca Cola and Pepsi merge to form another brand, it will largely lessen the competition.
Vertical Merger- When two companies of variant industries merge, then it is known as a vertical merger. In this type of merger, the merged companies voluntarily decide to combine their operations and production into one shelter. This is the perfect form of merger if you urge to build a cross-business with a strategic fit.
Market-Extension Merger: As the name suggests, it is a merger amid those companies which operates in different markets, but sell similar services or products.
Product-Extension Merger: Likewise, the product-extension merger happens in between companies of the same markets that sell different products or services.
Conglomerate Merger: A conglomerate merger exists between the companies dealing in unrelated business activities such as a clothing company buys an F&B company.
An overview of Company Takeover
A company takeover or business acquisition is a potent technique to purchase a company and absorb its existence. Usually, the company which buys another company is stronger and referred to as the acquirer. The motive behind a company takeover is to increase market shares. Also, it improves the performance of the acquirer’s company with the acquired competent resources of another company. While taking over the acquiring entity, the acquirer offers a cash price per share to the shareholders of the target entity. The acquire finances the purchases of the target company by purchasing it entirely for its shareholders.
Difference between Merger and Company Takeover
Since both the merger and company takeover has a common objective of flourishing business, it may be difficult to select one. Here are the key differences between them:
The merger and takeover contrast in a way in which the former is integration between two or more companies while the latter means to acquire or purchase a company.
Another difference that merger and takeover shares is that the merger takes place to expand the business operations; however, the takeover is practice to increase the market share of the business.
Conclusion
In a nutshell, both the merger and the takeover are equally efficient in enlarging the business operations of a company. They undertake similar corporate actions to develop a company and to increase the value of a shareholder. Lastly, it entirely depends upon your business needs to select a method among company takeover and the merger.We at swarit advisors and we are the best financial service provider in India.