Mergers allow companies to increase in value by combining resources, achieve better financial planning through diversification of operations, and realize economies of scale by utilizing combined production and distribution networks. Mergers also enable growth through external expansion and expertise in new areas, as well as stabilization through diversifying business scopes and consistently earning profits despite economic fluctuations. However, mergers can negatively impact the national economy, eliminate healthy competition from smaller competitors, and lead to monopolies through excessive concentration of economic power which is undesirable for customers.

1. Reason of merger:
(1) Increase in effective value: The principal reason of merger is, the value of the
existing company formed by the combination of resources of one or more firms is
greater than the earlier companies. Hence, due to merger the value of the firm
increases and its works more efficiently. Example: acquiring the assets of Larson
& Toubro, Reliance Industries has now highest value of assets.
(2) Better Financial Planning: Merger leads for better financial planning and
control. For example the long gestation period company. As a result the profits
earned from the short gestation period company can be useful for the long
gestation period, whereas the profits earned by the long gestation period will be
beneficial for both the company.
(3) Economies of Scale: The amalgamated company will have their operation higher
than the each individual company. It can thus have economies of scale by having
utilization of production plant, distributing networks, engineering services etc.
Such advantages can be accrued by same line of business when they are
combined.
(4) Growth: Growth of the organization can be measured by its volume of sales or
the profits earned by the company. The firm may grow at a rapid pace due to
external expansion because when two company’s mergers, both the firms have
expertise in two different areas.
(5) Stabilisation through diversification: External forms of expansion like merger
stabilize the business earning by diversifying its scope of operation. The company
experiences wide and various economic fluctuations in the business but due to
merger the merged business will consistently earn profits
Demerits of Merger:
(1) Effects the National Economy: Merger is basically for the growth of the
organization by reducing competition; maximum utilization of the capacity,
operating economies and rehabilitation of the sick unit. Government comes up
with various schemes for mergers every scheme should be examined keeping in
view its danger to the economy. The schemes should be taken up only when it is
advantageous to the economy.
(2) Elimination of healthy competition: Merger may convert the small and growing
unit into a larger one. Hence, it reduces individual competency to offer
competition for healthy growth of the industrial unit.
(3) Concentration of economic power: Mergers have the tendency of concentration
of power further it leads to monopoly which is ultimately not beneficial for the
customer because they get standardized product than of a quality product.