For many young startups, getting acquired by a bigger more established brand or merging with another startup is the ultimate exit strategy. Brands merge or acquire other brands for varied reasons.
The underlying principle for mergers and acquisitions is simple: 1 + 1 = 3. In other words, the combination of two companies will be worth more than the sum of its parts.
Just last week, Microsoft announced its plans to acquire professional networking site LinkedIn for a sum of about $25 billion. While this may not be the largest acquisition in the industry, it has gotten a lot of people talking especially the synergy Microsoft wants to create between LinkedIn, Microsoft Office 365, and Microsoft Dynamics, its enterprise resource planning (ERP) and customer relationship management (CRM) software suite.
Just like Microsoft, most brands are always on the outlook for a mergers/acquisitions that would be great for their bottom line. One such merger that would be quite strategic is between online gaming site Casino.com and online casino games software provider playtech. This is because this big merger will be of benefit to both ends, in the gaming industry.
So, what are some of the benefits of such a merger?
Well, we have covered five of the most common benefits for you below.
In today’s economy, scaling your business can be a challenging task. Whether it’s seed capital, or later stages of product development or rolling out in the market, it’s become harder and harder to obtain lines of credit and loans from traditional sources like banking institutions. Other options such as venture capitalists and equity, investors that are increasingly being favored by startups is also not easy since it’s really a disproportionately huge number of startups that are battling to be recognized by a handful of investors. Merging can make your company more valuable, putting you first in line for rounds of financing. This is because; an ideal merger will increase revenue, reduce overhead and redundancies, enabling the company to attract more capital and increase the value of the owner’s equity in the company.
Synergy is the principle that two or more objects functioning together to produce a result not independently obtainable. When applied business, it simply means that teamwork will produce an overall better result than if each person within the group was working toward the same goal individually.
Therefore, the overall effect of synergy becomes improved performance with reduced costs. Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses.
Merging of companies usually result in a greater range of products and services not to mention a wider range of customers than the two merging brands would do individually since these two brands these may be complimentary in the products/services they offer.
A brand may also seek to merge with another a seemingly unrelated industry in order to reduce the impact of a particular industry’s performance on its profitability or to deepen its market penetration in a key area of operations.
Growth and market penetration
One lucrative reason why a brand may want to acquire a competitor is that the acquiring brand gets an opportunity to grow its market share by acquiring the competitor’s market base by default hence avoiding all the legwork involved in cultivating a new market.
Merging with another company provides the opportunity to increase market share and expand into new geographies and sectors.
Skills and knowledge
Merging of brands means merging of teams hence the merged companies have access to the very best minds from both companies and can make up for shortfalls in the individual companies’ skill-sets. This in turns leads to more innovative products and an overall trickle-down effect of higher earnings.
Some companies use acquisitions as an alternative to the normal hiring process. This is especially common when the target is a small private company or is in the start-up phase. In this case, the acquiring company simply hires the staff of the target private company, thereby acquiring its talent (if that is its main asset and appeal).