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Thinking about joining forces with a larger business? How to know if it’s the right time

Posted by Neha De

December 7, 2021    |     3-minute read (502 words)

A merger happens where two companies join hands in order to create a new company. It helps them diversify products, expand their market share, reduce competition and risk, and increase profits, among other advantages. 

A variety of reasons could be behind the merger — two small businesses may decide to join forces, a small, struggling company may get absorbed by a large enterprise, or even two large companies may opt to come together to become stronger. 

Although few entrepreneurs build their companies in anticipation of one day merging with another company, the right business mergers can be very valuable. That said, if you think your business may benefit from merging with a bigger brand, keep reading to figure out if it is the right time to do so. 

You need to better fulfil your customers’ needs – As a small business owner or a solopreneur, you have to wear multiple hats, from product development and market research to hiring people and customer support. This is feasible only up to a certain point, because while you are busy maintaining the status quo in your organization, you are not left with enough time, resources or energy to innovate, and you end up disappointing customers. So, unless you meet your customers’ growing needs, you will lose them to your competition. A merger can help take care of this issue. 

You are looking to grow your range of products and services – If you have only a couple of products or services, then merging with a larger company can automatically increase the range of products or services you offer to your existing users. Increasing the number and type of products on offer is effortless when you have access to more resources and work with a larger team. (Note: This, and other conditions, will be part of the agreement you make with the merging company). 

The best type of merger in this case is where both companies have products that complement each other. An example of this is Merrill Lynch merging with Bank of America. 

You want to expand to a new market – If you are looking to penetrate new geographies or markets, a merger can go a long way in fulfilling that need. A merger can help with gaining a specific niche or a new geographical area in an industry.

You want to mitigate the effect of seasonality –  Many organizations have to deal with seasonality in their sales, which hampers their revenue. When you are part of a larger company with several other products, you create a source of income regardless of seasonality. And you don’t have to worry about sales going down during some parts of the year.

You want to improve your financial power – When businesses grow, they can benefit from economies of scale, which means that the cost to produce and sell the same product goes down as the market share increases. And when companies merge, overall revenues increase, making the end company much stronger financially to attract investors, obtain credit and form strategic alliances. 

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