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Advantages and disadvantages of acquisitions

On Behalf of | May 1, 2023 | Mergers and Acquisitions |

Acquisitions occur when one company takes over another one. An acquisition can be made through friendly negotiations, or it can be a hostile takeover. In the latter case, the company acquiring the company buys a majority of shares from its stakeholders, often at a higher price than they could get otherwise. Acquiring a New York company by acquisition has advantages and disadvantages, depending on the circumstances.

Advantages of acquisitions

While mergers and acquisitions are very similar, a merger occurs when two companies join to create a new one. In contrast, an acquisition occurs when one company buys out another. Yet, many of the benefits apply to both. If the companies operate in the same field, they often have a larger market share. Simultaneously, returns on investments often rise because redundant positions can be eliminated. If a company acquires one of its vendors, they no longer pay a markup on those products, reducing manufacturing costs. Sometimes, the company can eliminate real estate and operate the new company out of a smaller building.

Disadvantages of acquisitions

The first obstacle the acquiring company must overcome is ensuring they do not pay too much to get the other one. Therefore, it is essential to learn as much as possible about the other company through a strengths, weaknesses, opportunities and threats analysis before carrying through with the plan. If the acquiring company intends to operate the two businesses as one, there can be issues with merging two company cultures. In some cases, the number of employees must be reduced, which can result in large benefit payouts.

When one company buys out another, they can merge or continue to operate as two companies. Both options have advantages and disadvantages.