What Is a Strategic Merger?

Organizations undertake strategic mergers with other companies to accelerate their growth, rather than growing organically. The aim of a merger is to create an organization that is stronger than the sum of its parts. The merged organization is then in a better position to achieve its strategic goals.

Organizations use strategic mergers to achieve a number of different objectives, including gaining access to technology or products, acquiring additional customers, creating or removing barriers to entry, and developing economies of scale.

Growth is a key factor in strategic merger decisions. Organizations recognize that growth will enable them to compete more effectively against larger competitors or reduce their costs by taking advantage of economies of scale. For example, when a law firm announced a merger with another firm in the same sector, it stated, “the move will significantly boost its presence in the commodities sector and add further weight to its global reputation for shipping and transport work.”

A strategic merger can give an organization access to products or services that are not in its current range. The new products may enable it to increase revenue by offering a wider range to existing customers or meeting the requirements of new customers. Acquiring existing products also reduces an organization’s product development costs and enables it to replace older or weaker products that are not profitable.

Organizations can use strategic mergers to strengthen their supply chain. By merging with a key supplier, the organization can protect its source of supply and potentially reduce its costs. This is an important move when a supplier is the only source of an essential raw material or component. This approach also creates barriers to entry for potential competitors, strengthening the organization’s position further.

Where an organization has a strong marketing operation or distribution network, it can use strategic mergers to acquire additional products to sell through its sales channels. For example, network company Cisco’s strategy is to acquire companies with products that complement its own. It can then use its sales strengths to sell add-on products to existing customers.

Research may indicate market trends that provide important strategic business opportunities. Organizations that recognize the opportunity but do not have the products to meet the need can use mergers to fill the gap. That will enable them to move quickly, rather than delay while they develop their own products.