Advantages & Disadvantages of an Acquisition

by Luke Arthur; Updated September 26, 2017

When a company wants to expand, one way it could choose to facilitate its plan is by acquiring another similar business. While an acquisition can lead to some rapid growth for the company, it can also introduce some difficult issues along the way. Before pursuing the acquisition of another company, it is important to consider the advantages and disadvantages the business deal will present.

Gain Experience and Assets

One of the benefits of an acquisition is your company can quickly gain the experience, goodwill and assets of the other business. If the business you acquire can complement what your company does, the merger can improve your efficiency overall. With the increase in staff and assets, your company can increase output and improve profits. Before buying, assess your company's weaknesses and shop for a company that would strengthen your business and its bottom line.

Excite the Shareholders

An acquisition can breed excitement among the shareholders. When shareholders of a public company hear of a merger or acquisition, they tend to have a positive outlook on the value of your company as well as the one for sale. While acquisitions do not always work out, most investors will be excited at the possibility. Taking steps toward an acquisition often leads to an increase in the stock price and the equity of their investments.

Combining Cultures

An acquisition presents the tricky task of combining the cultures of two different businesses. Most business cultures take a long time to develop, and adjusting to a new normal can be problematic for the owners and upper management as well as the rank-and-file of both companies. The mergers of culture and philosophy can create conflict between the management of your company and the employees of the newly acquired company.

Duplication

An acquisition can lead to unnecessary duplication. When you combine two similar companies, many of the positions held in one business will be at work in the other. This leads to two people or departments doing the same job. In many cases, an acquisition leads to job cuts and reorganization as the newly formed enterprise works to maximize efficiencies in human resources and in its processes. The maneuvers will most likely threaten employee morale across the board.

About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.