Mergers and acquisitions collectively constitute a term for a particular strategy aimed at achieving specific business goals and objectives. Understanding the strategic purpose of mergers and acquisitions leads to an understanding of the reasons or motivations why organizations pursue this business strategy.
Mergers and Acquisitions as a Business Strategy: Reasons and Motivations
1. Vertical Integration
As a business strategy, one purpose of mergers and acquisitions is to build the capacity of an organization through vertical integration. To be specific, vertical integration involves an organization merging with or acquiring its suppliers, distributors, partners, or other organizations relevant in its operations.
2. Horizontal Integration
Some organizations pursue merger or acquisition initiatives for the primary purpose of horizontal integration. Under this specific strategic purpose, an organization merges with another organization or acquire an existing one to combine customers bases and market shares, thus resulting in either the maintenance or promotion of dominance in the market.
3. Business Diversification
Another purpose of mergers and acquisition is to enable an organization to diversify its business, particularly its products and markets or market segments. This organization does not need to spend time and effort in developing new products or entering new markets by merging with or acquiring another organization with existing and established products in established markets.
Expanding the business beyond the national or regional border is another motivation for mergers and acquisitions. In other words, an organization pursues merger and acquisition initiatives as part of its internationalization strategy. An example would be an American retail company merging with or acquiring retail companies in Southeast Asia to enter the Southeast Asian market.