What is a primary reason businesses engage in mergers?

Businesses often engage in mergers primarily to consolidate resources and reduce competition. By merging with another company, businesses can combine their assets, technologies, and capabilities, which allows for more efficient operations and better utilization of resources. This consolidation can lead to increased market share and a stronger competitive position in their industry. Additionally, by reducing the number of competitors in the market, a merged entity can often enjoy greater pricing power, improved economies of scale, and enhanced bargaining power with suppliers and distributors.

While increasing individual company wealth can be an outcome of a merger, the primary strategic intention often focuses on consolidating resources and improving competitive standing. Enhancing employee benefits could be a consideration in some mergers, but it is not usually the main driving force. Similarly, compliance with federal regulations is usually a matter of operational necessity rather than a reason for pursuing a merger. Generally, the focus on creating a more robust market position and achieving operational synergies underpins the motivation for many mergers.