What are the advantages and disadvantages of mergers?

Banking & FinanceFinance ManagementGrowth & Empowerment

Merger is nothing but an agreement between two or more organizations or companies to form as a one company or organization.

The main objective of merger is to gain more market share or to enter into new market areas or sectors and maximize their profits. It also helps companies to restructure their business units according to market changes.

Merger helps companies to sustain market changes and go for more customer base.

Types of mergers

The types of mergers are explained below −

  • Horizontal Merger − If one company merges with another company or companies which have indirect competition in terms of product lines/markets is called horizontal merger.

  • Vertical Merger − If one company merges with another company or companies which are in the same supply chain is called vertical merger.

  • Extension Merger − If one company merges with another company or companies who are in the same service or product to expand their market share is called market extension merger.

  • Product extension Merger − If one company merges with another company or companies who are in different services or products but there are in related services or products is called product extension merger.

  • Conglomerate Merger − If one company merges with another company or companies who are in different sectors (to explore different sectors) is called conglomerate merger.

Advantages of mergers

The advantages of mergers are as follows −

  • Economics of scale.
  • Increase in investment for research and development.
  • Market share increases.
  • Operation cost decreases.
  • Duplication is avoided.
  • New geographical areas.
  • Unprofitable businesses can be saved from bankruptcy.

Disadvantages

The disadvantages of mergers are as follows −

  • Increase in prices
  • Increase in unemployment
  • Communication and coordination between employees can be difficult
  • Decrease in competition, increase in monopoly in market
  • Diseconomies of scale
  • Premium for shareholders may increase
  • Choice for consumers will decrease
raja
Published on 13-Jul-2021 12:39:48
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