Pros And Cons Of Buying Or Acquiring Another Business

Pros And Cons Of Buying Or Acquiring Another Business

Pros And Cons Of Buying Or Acquiring Another Business 150 150 SAX LLP - Advisory, Audit and Accounting

Mergers and acquisitions are very common in all types of private and public business settings. The business world is rife with reports of businesses acquiring or trying to acquire other businesses, companies merging with other companies, and firms investing in other firms. M&As occur all over the world, in all kinds of industries and they involve all types of businesses. A business acquisition or corporate takeover is when one firm buys or purchases another established firm. The firm acquiring the other is referred to as the buyer/bidder and the firm being purchased is called the target. In the private sector, this usually involves a complete buyout of the business including its assets, production processes, workforce, and even its debt. In the public sector, corporate acquisitions occur when a company acquires the majority shares (51%) in another public company. The two main types of corporate takeovers are friendly and hostile takeovers, but we also have reverse and backflip takeovers for special M&As. Depending on the prevailing nature of the involved business entities, the buyer/bidder can expect some of the following advantages and disadvantages after buying the target business.

 

Advantages

 

One key advantage of acquiring an established and already running business is that the buyer gets to skip the startup phase. This is the initial launch and setup stage where the business owner faces and solves all the operational kinks of a new business. In a business acquisition, the buyer avoids all market cultivation hassles, initial competition woes, market positioning hurdles, and product & brand awareness marketing campaigns. You skip all the roughness and jump right into the real treat. Another benefit of purchasing another firm is that the acquiring company gets lots of new resources to consolidate and enhance its business operations. This includes all capital assets like manufacturing plants and marketing channels, experienced workforce, and suitably located business premises. Most businesses are targeted for acquisition due to their prevailing business success or promise.

 

In most cases, the buyer will get an already established market for the target firm’s products and services, which means an adequate client or customer base. Another huge advantage of buying out another business is that it speeds up business growth & expansion and hence enhances market domination. Taking over a new business results in capital growth and operational expansion for the buyer and this translates into economies of scale. And if the acquired business is a competitor, the buying company consolidates its market power by creating a monopolistic business environment.

 

Disadvantages

 

One main disadvantage of buying out another firm is that in most cases you need massive financial resources. This is especially so if the target company has something “special” to offer the buyer. In such cases, the buyer pays a hefty amount that is far much higher than the current market value of the target company. That is why you should consult an experienced Clifton NJ accounting firm for a full audit of the target company before acquisition. Another potential con of acquiring a firm is that the buyer purchases all the negative or bad attributes of the target business. This includes incompetent staff, poor corporate image, lack of brand awareness or poor product or service reputation, costly rental premises, underperforming production plants, bad storefront locations, and any other operational and/or management problems. And last but not least, the newly merged firms might not integrate properly leading operational distractions, which can ultimately undermine diversification, business growth, and overall profitability.

 

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