Question

Define business combination and mention reasons why do companies merge?

Answer 1

Business combination refers as an incorporation of 2 or more companies to join operations of business and for mutual benefits. The key objective of Business Combination is to enhance or maximize the profit margin for both companies. A business combination is significantly a transaction or an event where an acquirer gets control over another business. It is a usual way for entities to enhance in size.

Why do entities merge

1. Declining competition level: When 2 or more entities combine or merge and invade into a business combination. This becomes increase the market share instantly and this is also providing entities higher control over the market.
2. Cost cutting: With business combination, the production level is enhanced, enabling companies to manufacture goods on the higher level.
3. Development: A business combination provide an opportunity to develop market share without having to truly profit it by taking every necessary step themselves - rather, they purchase a rival's business at a cost.
4. Competing in global market: With huge working units, huge number of sophisticated staff and a wide assignment channels, the entity can extend its undertakings by invading into new markets.