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Mergers and Acquisitions | 5 Main reasons and arguments that lead companies to invest in these operations

13 11 2023 Corporate Finance
Mergers and Acquisitions | 5 Main reasons and arguments that lead companies to invest in these operations

Following international trends, both Portuguese companies and entrepreneurs are increasingly aware of the reality of Mergers and Acquisitions and the consequent impact on organizations' medium-long-term strategies.

This fact is observable through an increase in dynamism in the market in recent years, highlighting that, in the first half of 2023, a total of 263 operations were registered, totaling 4,865 million euros (according to data from TTR Data, mostly in areas such as Real Estate, followed by Internet, Software & IT Services).

It is important to understand why entrepreneurs and managers resort to Mergers and Acquisitions and what are the main advantages of these operations.


1. Accelerate growth

The most common reason for M&A (Mergers & Acquisitions) operations is the search to accelerate the company's growth, being even more relevant in mature and stagnant markets where it is difficult to achieve significant growth. Thus, M&A can be a unique way of significantly accelerating the company's growth, increasing market share, creating value for partners or shareholders through economies of scale.


2. Acquisition of unique assets

M&A is also an excellent strategy for acquiring unique assets that, otherwise, could take years/decades to obtain with a high risk of failure along the way (brands or R&D). These factors make it possible to increase the company's global notoriety or obtain competitive advantages in the market for launching new products and/or improvements to current products.


3. Synergies

Increases in size resulting from acquisitions enable the generation of synergies (savings obtained through the concentration of administrative and logistical costs or discounts obtained through acquisitions in larger quantities). It is noteworthy that the option for a horizontal integration M&A process will traditionally target a competing company, reducing common costs.


4. Expansion of the Value Chain

However, an M&A operation associated with vertical integration will allow the acquisition of a supplier or customer, increasing control of the acquirer's distribution chain. In many cases, not only are significant synergies obtained, but there is also greater added value resulting from extended control of the process.


5. Diversification

M&A operations are also used to reduce risk, in a diversification approach. To achieve this, acquisitions can be made in sectors other than the core business and counter-cyclicals. With an appropriate M&A strategy it is possible to reduce exposure to external shocks, offsetting periods of adversity with gains in other activities.


You must first properly validate whether the motivations for moving forward with an M&A strategy are aligned with your organization's global strategy. And, of course, ensure that you work with a specialized team, focused on creating value for your business, which helps you to make the process credible to potential buyers, sellers and financial institutions, so that you can complete the operation successfully.



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