Acquiring another business can be a big step for one business to take. It is helpful for business owners considering an acquisition to have some idea of the potential benefits and downsides of an acquisition. An acquisition involves the complete purchase of another company. Some of the potential advantages and disadvantages of this process are as follows.
Create economies of scale and broaden target audience
If the existing business purchases another business that sells or provides similar products or services, the acquiring company can potentially increase production by lowering production costs which is referred to creating economies of scale. The acquiring company can also use the marketing and sales strategies and resources of the acquired company which can also lower costs and increase productivity. The existing business can potentially broaden their target audience through an acquisition by accessing the existing market the acquired company is already tapping.
Disadvantages: Redundancy, culture clash and increased debt
Potential disadvantages include that the acquiring company runs the risk of redundancy by acquiring a company that sells or provides similar products or services and may end up competing with one another. Another potential disadvantage of an acquisition, especially if staff of the acquired company are retained, is that the culture and values of the two companies may be incompatible and clash. The acquiring company should also keep in mind that the acquisition has the potential to increase its debt burden.
Ensure that you are make an informed decision
Business law is an area of the law that can help businesses and businesses owners with a variety of concerns including acquisitions, mergers and business litigation. There are a variety of potential upsides to an acquisition which is why business law can be useful to help business owners considering an acquisition better understand what they are getting into and if it is the best move for their business.