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Pros and cons of mergers

On Behalf of | Sep 20, 2022 | Corporate Litigation

Mergers are a common part of business life in New York. Companies are constantly trying to form new partnerships and figure out the size that will benefit their business approach best. Mergers are not inherently good or evil. Instead, companies must weigh the benefits and drawbacks of these significant steps before making a decision about a particular merger.

Efficiency

Mergers can improve the efficiency of two companies. An economy of scale can aid machinery production and the operations of various departments. A sizable human resources department, for instance, can easily transform two staffs into one group of employees. Larger, centralized machines can cut down on transportation costs. Companies would typically consolidate marketing budgets as well. Mergers can also help a company expand into a new market and gain a larger client base instantly.

Control

There are a number of downsides to a merger. Mergers can lead to potential threats by antitrust regulators. Business and commercial law have to be followed to the letter when looking at a merger. Sometimes, mergers can decrease morale among employees and increase fears that there will be downsizing. A merger may require a substantial amount of capital to be paid up front to a variety of different groups. This expense may make it more difficult for companies to remain profitable over an extended period of time.

But the clearest threat of a merger is the problem of combining two established labor forces. The idea behind a merger is that the new company will combine aspects of working for both companies. However, there will inevitably be substantial changes that management will have to help their employees adapt to. There may be new management procedures and technology used. Employees may have to report to a new boss and handle a new vacation and sick leave schedule. They may be anxious or worried about the future of their jobs. Companies have to keep in mind all of these benefits and challenges when they consider a step as monumental as a substantial merger.