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Introduction
In the contemporary world, the numbers of companies operating in different segments of the economy are increasing by the day. This has made many of them realize decreased revenue over a period of time. This is usually attributed to an increase in the number of such companies that are offering the same services to the consumers.
As a result of this increased competition, some of the companies have halted their operations while others are facing a possibility of shutting down their operations in the near future. This eventuality is what has led to many companies to seek a merger with others that are already doing well in the market. This move has been very instrumental in making sure that some companies remain competitive in the market today.
Acquisitions and why they are good during a recession
Acquisition refers to a move by one company to buy another company that may be struggling to cope with the market dynamics. It is worth noting that the acquisition can be one hundred percent or less. This may depend on the agreement signed by the two companies involved in this transaction.
During the recession period some of the companies without a strong financial background become the main victims. Therefore, finding a company that is willing to acquire such a company may be very useful to the company being acquired. This is because; there will be an increase in the amount of revenue realized.
This is partly informed by the nature of acquisition. If the company was acquired partly, such a company may be entitled to getting some of the money realized by doing business using the other company’s’ name. This means that the new company will be treated as a partner in the new business and thus entitled to all benefits that come by being in a partnership form of business.
The other benefit that comes with acquisition especially during the economic recession is reduction in expenses incurred by the company. We find that some of the small companies have more over heads compared to the well established ones because of the mode of their operations. Therefore with this kind of acquisition, the company is bound to experience some of these benefits.
In addition, the acquired company may bring in some additional and useful information to the new company that may help it move to greater heights of success. Some of the people managing the small companies are people with vast experiences and their only undoing has been the domination of the industry by the large companies. Therefore once they have been acquired by such companies, they can have a platform where they can showcase their expertness in that field.
In addition, the acquired company stands a good chance of making the penetration of its goods and services easier to the market. This is because they can use the company good reputation to market their goods using the brand name that is well known to the market.
For instance, when Swedish Company Erickson was acquired by SONY, its mobile phone sales have continued to grow every year because SONY is a household name all over the world. That is the reason why people would buy such a product because they have faith and trust in SONY.
In case the company was acquired partially, the issue of sharing losses comes as a benefit to the company that has been acquired. We find that if the company that has been acquired was left to shoulder all the losses incurred in a financial year, it may take several years to record any positive financial results. Therefore, acquisition helps such a company to realize fewer losses because they will be shared between both of them.
There is also the aspect of efficiency. It has been observed that acquisition has helped many companies create the economies of scale that has resulted to an increase in efficiency in their operations. This is because the two companies jointly form a new and a bigger company that is in a position to increase its output in terms of ensuring efficiency is observed.
The other benefit that comes with mergers and acquisition has been the issue of acquiring the knowledge to position oneself for days to come. Some of the people allowing their companies to be acquired by bigger companies have done that so they can study the essentials of operating such a huge company. Therefore, after a certain period of time such people may leave their companies and start their own companies as they seek to conquer the market.
The other reason why acquisition is good is promote profitability because a combination of two or more companies may result in more than average profitability due to cost reduction and efficient utilization of resources.
Conclusion
Acquisition of one company by another has been there for many years now. This is because each experience different reception of its goods and services by the customers. It should be upon the government to make sure that barriers that hinder the growth of small and medium enterprises are removed. This move would in itself make sure more people are employed hence minimizing any chances of people engaging in criminal activities because of lack of job opportunities.
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