Identifying the advantages and disadvantages of acquisition strategy helps the business organizations to make clear decisions when getting implementing an acquisition in the business. With the increasing complexity in the business environment, the number of acquisitions that happen in the business world has increased. However, it is also identified that any businesses suffer losses due to not knowing the advantages and disadvantages of acquisition strategy properly. This leads to unfavorable situations for both acquirer and acquiring candidate.
Identification of advantages and disadvantages of acquisition strategy allows the business to develop an idea about the acquisition agreement from all perspectives. Since acquisition strategy is a comprehensive plan that highlights the management approach to meet business objectives while managing risks, knowing the consequences of the strategy implementation is important.
Below mentioned are some most common advantages and disadvantages of acquisition strategy.
Advantages of Business Acquisition
1. Help business organizations to fill in critical service gaps.
The consumer market is a volatile entity that changes often. this makes businesses to be highly flexible to match the changing customer preferences. The changes in customer preferences and expectations often create gaps in the services provided by business organizations. By implementing a good and effective acquisition strategy, these types of businesses can continue to provide a continuous core offering without any interruptions to the services they provide.
2. Reduced entry barriers to the market
By getting into an acquisition agreement, a business gets the possibility of entering into a new market or a new product line. It allows to acquire a business in a new market where the brand is already established, reputation, and a client base is created. The acquisition helps the businesses to overcome entry barriers locally as well as in the global market that are otherwise challenging.
3. New competencies and resources
A business organization can choose to take over other businesses to gain new competencies and resources it does not hold currently. This allows for many benefits such as growth and profitability, long-term financial benefits, and reputational advantages. Expansion of business using diversified business options can help the business to face economic slumps successfully.
4. Gain market power
The acquisition helps the businesses to increase the market share in a particular target market quickly and effectively. In a situation where the market competition is challenging, growth through business acquisition can help the businesses to gain a competitive advantage and help to achieve market synergies.
5. Gain fresh ideas and perspective
Acquisitions usually put together new teams allowing innovation to build and look at the issues from a new perspective to reach business goals and objectives.
Disadvantages of Business Acquisition
1. Duplication of business functions and duties
A business acquisition may cause employees to duplicate business functions or the assigned duties for them. When a business acquires a similar type of business, there can be instances where two departments or two employees engage in the same activity. This can be cost and time-effective and create adverse impacts on the productivity of the business process.
2. Cultural conflicts
Business organizations usually have their unique business cultures. When there is an acquisition, differences in the two business cultures can create a conflict and demotivate employees. Employees, managers, and activities may not integrate as expected and it can cause anxiety for employees.
3. Mismatched businesses
When the initial investigation about the organization match is not done properly, there is a possibility that the two businesses are not a suitable match for an acquisition. Most businesses identify this once they acquire and start functioning together. The differences in business goals and objectives of the two businesses can be a major reason for the mismatch.
4. Damage to the brand
An acquisition can damage the reputation and the image of the new company or the existing company. A proper evaluation should be done to identify whether the two brands should be kept separate has to identify before making the acquisition deal.
5. Pressure on suppliers of the business
Once an acquisition is done, the capacity of the suppliers may not be enough to provide for the expanded production. This may put huge pressure on suppliers and lead to create an issue in the supply chain of the business.