Costs and Benefits of a Merger

Merger activities are a crucial part of the corporate sector. These activities are taking place for a number of reasons. The costs and benefits of a merger activity are different for different companies. This depends on the target company’s size, its present business and customer base and the number of shareholders of the company.
Like any other investment types, merger can be also termed as an investment. The costs of a merger is related to three factors namely impact of revenue, cost of dealing and the cost of integration. The cost of transaction in a merger process is the money that is paid for acquiring the company.

This money can create some short-term problems for the company regarding the cash flow. To handle this crucial part of a merger process, the acquiring companies depend on the experienced professionals of the field.

Benefits of a Merger
The merger activities are performed for a number of reasons. Firstly, the mergers are carried out to increase the production of the companies. The acquiring companies after merging with the target companies can use the resources of the target company.
At the same time, the customer base of the target company can also be used by the acquiring company. All these factors are very important for a merger process.

Again, when two companies merge with each other, the share market generally responses positively and the investors invest in the shares of the new company (acquiring company + target company) with the assumption that the share value of the company would rise rapidly. Generally, it has been seen that whenever there is a merger and the acquiring company has a good market record, the share prices rise rapidly. This is one of the prime reasons of mergers.

There are several other benefits of merger activities. The target companies get new lifeline from the merger activities. Those companies are selected as target companies that have enough potential of development and good resources. The production and profit levels of the new company increase substantially once the merger process is done.

Again, in the recent times, it has been seen that two companies are merging with each other in order to get some specific license from the government to produce a certain commodity or to provide a particular service to the customers.

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Last Updated on : 27th June 2013

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