Why do Companies Want to Acquire Other Businesses?

Published: 2021-09-10 22:05:08
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Category: Business

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Many companies see buying ready made business as a way to minimize risk and reduce their rate of failure. Normally, the typical buyer knows its own market niche quite well, and can safely increase its revenues and market share over time by continual, careful attention to internal organic growth. Here are a few reasons to buy an existing business I can think of: 1. To Avoid the Risk Involved With Building a Business From Scratch. One of the most difficult things about starting a business is getting all of the systems in place.
When you purchase an existing business, all of the systems are already going to be in place. If you are purchasing a successful business, you may not have to change much. You can simply adjust things occasionally in order to improve them. Furthermore, if you purchase an existing business, you will most likely have several employees already in place. This means that you will not have to train everyone you can bring in new people as you need to. 2. To Gain Access to New or Emerging Technologies
The target may have an excellent product that the buyer can use to fill a hole in its own product line. I think this is an especially important reason when the market is expanding rapidly, and the buyer does not have sufficient time to develop the product internally before other competing products take over the market. Also, acquired products tend to have fewer bugs than ones just emerging from in-house development, since they have been through more field testing, and possibly through several build cycles.
However, considerable additional effort may be needed to integrate the acquired products into the buyer’s product line, so factor this issue into the purchase decision. 3. To Strengthen the Company’s Competitive Advantages Intellectual property is a defensible knowledge base that gives a company a competitive advantage, and is one of the best reasons to acquire a company. Intellectual property can include patents, trademarks, production processes, databases that are difficult to re-create, and research & development labs with a history of successful product development.
To Gain Market Share Companies generally strive toward a high market share, because this generally allows them to enjoy a cost advantage over their competitors, who must spread their overhead costs over smaller production volumes. The acquisition of a large competitor is a reasonable way to quickly attain significant market share. Also, if you are purchasing a well-known business, you are already going to have a customer base in place and the advantage of reputation. . To Gain New Distribution Channels A business can be bought to increase and improve the buyer’s distribution channels so that products can reach customers in less time. Therefore, a target may have an unusually effective sales channel that the buyer thinks it can use to distribute its own products. Examples of such sales channels are as varied as door-to-door sales, electronic downloads, telemarketing, or a well-trained in-house sales staff.

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