One of the traditional ways a company expands is by acquiring or merging with another company.  The acquired company represents and up-and-going business that has an on-going production system and access to markets.  This provides a rapid method of expansion.  However, even if the acquired company is economically viable, there are pitfalls and potential problem areas to avoid.

Questions of how the acquired company will complement your company must be answered.  Will synergies develop from the merger or acquisition?  Will the strengths of one company compensate for the weaknesses of the other company?  Will the new company be stronger than the sum of the two existing companies?  Do they both have similar vision of the future?  These questions must be carefully assessed and analyzed before you can make a decision of this magnitude.

The other company must be properly valued regardless of whether it is acquired or merged with your company.  This is usually a point of intense negotiation between the two companies.

Additional information on mergers and acquisitions is presented in the box at the right.