The role of M&A in creating new market opportunities offers a solution to a different business problem. Perhaps the acquirer is looking to grab a new product line, add some additional facilities, enter a new market, or gain expertise and intellectual property. For professional services firms, a strategic M&A is often about gaining credibility. Adding intellectual firepower, or changing the balance of power in a particular market.

Synergies

By combining business activities, overall performance efficiency tends to increase. And across-the-board costs tend to drop since each company leverages the other company’s strengths.

Growth

Mergers can give the acquiring company market opportunities to grow market share without doing the significant heavy lifting. Instead, acquirers simply buy a competitor’s business for a certain price, in what is usually referred to as a horizontal merger. For example, a beer company may choose to buy out a smaller competing brewery. Enabling the smaller outfit to produce more beer and increase its sales to brand-loyal customers.

Increase Supply-Chain Pricing Power

By buying out one of its suppliers or distributors, a business can eliminate an entire tier of costs. Specifically, buying out a supplier, which is known as a vertical merger. Lets a company save on the margins the supplier was previously adding to its costs. And by buying out a distributor, a company often gains the ability to ship out products at a lower cost.

Eliminate Competition

Many M&A deals allow the acquirer to eliminate future competition and gain a larger market share. On the downside, a large premium is usually required to convince the target company’s shareholders to accept the offer. It is not uncommon for the acquiring company’s shareholders to sell their shares and push the price lower. In response to the company paying too much for the target company.