Why Do Small Corporate Enterprises Enter Into Merger Agreements?

In the corporate world, businesses are always looking for ways to evolve and strengthen their competitive edge in the market. Changes in the requirements of the clients they cater to and the economy can transform the manner in which these companies operate. This is the reason why the top executives in charge of the management of these organizations formulate and implement effective business strategies. These schemes help these establishments take advantage of the opportunities that their business environment presents while overcoming potential obstacles. A convenient way for small corporate enterprises to reduce operating costs or launch innovative products is by entering into merger agreements with similar companies of the same size.

Bob Stefanowski , a leading expert on mergers from the United States says the purpose of any business consolidation agreement is to enhance business revenue. A corporate enterprise can achieve this by becoming cost-efficient through economies of scale, gaining access to new markets and introducing innovative products to their clients. In addition to this, the top executives of such organizations also exploit various tax gains because of such a deal. The benefits of a successful merger for small corporate enterprises are as follows:

·         Significant increase in value generation
Mergers often result in an increase in value generation for the companies that enter into such a business consolidation agreement. The rationale is that the shareholders’ value of the separate legal entity that results from the merger is greater than the value of the individual companies that enter the agreement. In addition to this, the new corporate enterprise can achieve greater cost efficient through economies of scale.
·         Tax gains
Corporate enterprises enter into mergers with similar organizations with the idea that the establishment that results from the deal generates a value greater than the individual companies will. Due to this, the business enterprise can generate more revenue because its share in the market environment where it conducts its activities increases. This results in tax gains for the new business organization that emerge from the business consolidation.
·         Increase in cost efficiency
When two corporate enterprises combine their resources to create a new separate legal entity because of the merger agreement, the new company enjoys greater cost efficiency. This is because a merger between two businesses results in economies of scale, which in turns encourages cost efficiency. As the productivity and output of the new organization increases its cost of production will reduce.
·         Diversification
Corporate enterprises that enter into merger agreements can offer a larger range of innovative products in the markets where they carry on their operations. As the companies are of similar size, operating capacity and their products are complementary, the merged corporate enterprise is able to attract more customers.
·         Skills and Knowledge
The corporate enterprise that results from the merger can employ the best experts in the fields of finance, marketing, research and production of both the individual companies.

Bob Stefanowski explains that the above benefits attract small companies to enter into merger agreements with other corporate organizations.
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