Reasons To Create

Reasons to create value While the primary objectives of the strategic and financial buyers are different, both share the need to add value to the acquired business. The buyers are ways to add value through the strategy of mergers and acquisitions are: Horizontal Integration: It is understood as horizontal integration, buying or merging with another company that competes in the same sector. The basic objective of seeking this type of integration, is the pursuit of scale economies (productivity increases cauando create a monopoly in the market) to reduce the average unit cost. We are also seeking more “market power”, ie, increase the ability to set a price that captures a larger portion of consumer surplus by reducing the number of competitors in an industry. Finally is used to acquire the necessary resources to enter new business lines or new markets.Here the term “resources” must be understood in a broad sense, including: brands, managerial skills, access to specialized know-how, R D, etc.. Vertical Integration: Defined in this way to acquire a company of its supplier for the purposes of producing its own inputs (backward integration) or one of its customers in order to have their own production (forward integration). Geographic diversification: This type of operation, what is sought is to reach a geographic market where the acquiring company has no operations. Thus, it covers a market that, if the company decides to cover it coming by itself, would require a more expensive and more prolonged in time. This type of M A is a special case of horizontal integration. Cross Sales: Occurs when a company acquires another, trading and trying to sell complementary products from one company to the customers of the other and vice versa.Elimination of inefficiencies: In this case what is sought is the acquisition of a company that is not generating the full value of their potential allows for inefficiencies in its management. Thus, the acquisition of these companies is obviously the target of others who have better management.

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