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What factors should you consider before acquiring a competitor?

Posted by Shivali Anand

December 21, 2021    |     3-minute read (571 words)

Some companies are eager to expand by purchasing a competitor. An acquisition can help boost market share, expand operations and add new resources in a short amount of time, but it’s important to weigh the risks as well. 

Consider our list of advantages and disadvantages of buying another company before signing a contract. 

Advantages of acquiring a competitor

  1. Access to new markets
Acquisitions can be beneficial by providing access to new markets. They can break down market entrance obstacles and render access to a preexisting client base. Further, acquiring a competitor may diversify your target audience by exposing your brand to new demographics. But first, but you must develop a long-term strategy, framework and milestones to guarantee that the items or services reach the market faster.

  1. Possibilities for better branding
To pique clients' interest in your industry, you can launch a combined promotion, share advertising and bundle purchases. This method is effective for retail items, consumer items, technology products and services.

  1. Bigger market share
An acquisition can help you swiftly grow your company's market share. This will help your business obtain a competitive advantage in the market and create market synergies.

  1. New skills and resources
Taking over another firm has the potential of bringing in new skills and resources, quick revenue development, access to R&D platforms and superior equipment. A typical acquisition comprises the purchase of the entire company, including all of its assets, production equipment and employees.

  1. Financial gains
You can enhance your income by purchasing a rival who works in a different market or offers different products or services. The purchase can also help you strengthen the company's long-term financial condition, making it easier to raise financing for expansion plans. You may also improve income by selling non-essential assets from the purchased firm.

  1. Fresh perspectives
Purchasing another firm brings access to its workers' efficiency and expertise, allowing the acquiring company to profit from its essential capabilities. Acquisition frequently aids in the formation of a new team of professionals with unique perspectives and ideas.

  1. Reduce production costs
By acquiring a company that offers similar items, you can cut your business’s production costs and reduce the risks of new product development. Purchasing another company also allows the buyer to expand their operations. Manufacturing plants, marketing channels and skilled personnel are all potential gains.

Drawbacks of acquiring a competitor

While an acquisition may help a firm develop significantly, it is not without potential risks, such as:

  1. Debt
To be sure you're not going to add to your debt burden, conduct an accurate cost and expenditure study of the target business. Balance sheets, accounts receivable and payables, as well as inventory, should all be assessed. It may not be profitable to acquire a firm with too many liabilities.

  1. Higher overhead
Buying another firm may result in a loss. Acquisition returns may be unappealing, or assets may be worth less than initially thought.

  1. Cultural disparities
A collision of company cultures might give cause stress in regard to resource and competency management. It's also possible that two firms' synergies are incompatible, or that their goals are at odds.

  1. Negative attributes may be part of the package
When a buyer purchases a company, they are also acquiring its potential flaws. Incompetent employees, a negative company reputation, poor customer service, a lack of brand recognition, expensive rental properties, inefficient production plants, unattractive sites and operational or managerial issues are examples of such pitfalls.

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