Why do companies acquire other companies?
Commercial awareness — the strategic logic behind deals, and scepticism about bad reasons.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
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To grow faster than they could organically — new markets, products, customers or technology — and to create value through synergies: cost savings from combining operations and revenue gains from cross-selling. Other reasons include consolidating a fragmented market, securing supply (vertical integration), acquiring talent or IP, and tax or financial benefits. Bad reasons exist too: empire-building and overpaying in a competitive auction.
The full answer
Good reasons
- Growth and market access: entering a new country or segment faster than building it.
- Cost synergies: removing duplicate overheads, procurement scale, combined plants and networks.
- Revenue synergies: cross-selling, pricing power, distribution.
- Capabilities: technology, IP, management or engineering talent.
- Vertical integration: control of supply or distribution.
- Defensive: pre-empting a competitor.
Types of merger
- Horizontal: with a competitor — biggest synergies, most antitrust scrutiny.
- Vertical: with a supplier or customer.
- Conglomerate: an unrelated business — diversification, which shareholders can usually do more cheaply themselves.
Why deals fail
Overpaying, synergies that don't materialise, integration and culture problems. Studies consistently find that many acquisitions destroy value for the buyer's shareholders — the premium goes to the target's.
Mistakes to avoid
Listing only "synergies" without saying what kind.
Follow-ups they may ask
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