Certified Financial Management Specialist Practice Exam

Why might a company acquire its competitors?

1. To further reduce its overall market share.

2. To leverage strengths and improve efficiency.

3. To eliminate all forms of competition.

4. To expand into unrelated industries.

The correct answer is: To leverage strengths and improve efficiency.

Acquiring a competitor can provide numerous strategic advantages, notably the opportunity to leverage strengths and improve efficiency. When a company absorbs a competitor, it can benefit from combining resources, technology, and expertise, which can lead to a more streamlined operation and enhanced competitive advantage. The integration of operations may reduce redundancies, improve economies of scale, and increase overall productivity. Additionally, this consolidation can create a stronger market presence, enabling the combined entity to negotiate better terms with suppliers and attract more customers through a broader product or service offering. By pooling knowledge from both organizations, the acquisition can also foster innovation and lead to better decision-making, ultimately achieving a more robust business model that can withstand market fluctuations. The other potential reasons listed—reducing market share, eliminating competition entirely, or expanding into unrelated industries—do not typically align with the primary strategic goals of acquisitions. Companies usually seek to gain market share and reinforce their position rather than diminish it, while completely eliminating competition can raise regulatory concerns. Expanding into unrelated industries falls more under diversification strategies rather than a direct rationale for acquiring a competitor.