Certified Financial Management Specialist Practice Exam

What is the main purpose of a market-extension merger?

1. To eliminate competition

2. To expand product lines

3. To reach new markets

4. To strengthen customer relationships

The correct answer is: To reach new markets

A market-extension merger primarily aims to allow a company to reach new markets. This type of merger occurs when two companies that operate in different geographical areas and offer similar products or services come together. By merging, the companies can leverage each other's distribution networks, resources, and market knowledge, effectively broadening their customer base. Through this strategy, the newly formed entity can access customers in regions where one of the companies previously had little or no presence, thus enhancing growth opportunities. The focus here is on increasing the footprint of the businesses involved, allowing them to capitalize on market potential and potentially enhance revenues as they tap into new customer segments. While eliminating competition, expanding product lines, or strengthening customer relationships can be benefits or results of mergers, the core goal of a market-extension merger is specifically designed around expanding reach into new markets.