Reply #6: Mergers eliminate lots of "general, sales, and administrative" expenses [View All]

[FarCenter]

In a typical manufacturing company, the cost of supplies, parts, machinery, and labor to manufacture the goods might be 45% of the selling price. Another 45% of the selling price might be the category "general, sales, and administrative" expenses, which covers everything from top managment to the person aswering phones at the customer support center.

To take one category in GSA -- the HR function, this has grown over the years from a simple hiring, firing, and payroll function to an elaborate organization overseeing all sorts of benefits and retirement plans, all sorts of government reporting functions, and incidently hiring and firing, although payroll is probably outsourced. A lot of this is due to HR execs expanding their turf, but it is also due to a great expansion of federal, state, and local laws and regulations.

When you put two companies manufacturing similar products together, you do not need both GSA budgets. You can probably cut at least half of one GSA budget if they are equal size companies.

Therefore, you can be more competitive and profitable as a single company than as two separate companies.

Essentially the same arguements hold for two service companies in the same service sector.