Mergers and Acquisitions
Mergers and acquisitions (M&A’s) play major roles in the corporate financial world, by bringing companies together to form an even larger business. While the terms are used interchangeably, there is a subtle difference.
Mergers are a combination of two business. Acquisitions, on the other hand, occur when one company absorbs another.
The distinction is important because how the M&A takes place determines several factors in the business handling.
In most cases with a merger, two companies move forward as one entity, usually with both companies surrendering their identities and stock while a new entity is created.
With an acquisition, the adsorbed business (aka the target company) is the only one that ceases to exist, and takes on the identity of the purchaser.
M&A’s have the potential to get messy pretty quickly, especially if one company does not want to be absorbed. In order for an M&A to be effective, most are handled by a company like ours to ease the transition and see that optimal synergy is achieved.
How do they benefit your business
Typically, M&A’s occur between two companies that feel it makes more financial sense to combine forces as a stronger, more valuable company.
Usually, they are often sought after during tough economic times, when stronger companies are aiming to create more shareholder value by absorbing smaller businesses. The rationale of the smaller business is simple: “If you can’t beat ‘em, join ‘em.”
As the businesses combine, they create synergy by increasing revenue while saving costs. Some ways synergy benefits companies include:
- Staff reduction: It’s common knowledge that mergers result in layoffs for most companies, saving the new entity the cost of additional salaries.
- Economies of scale: Companies receive a cost advantage as their production increases – meaning that as they place larger orders on everything from stationery to IT programs, they can negotiate better prices with their vendors.
- New technology: A larger business benefits from new and innovative technology provided by the smaller company they acquired during the M&A.
- Increased market reach: When companies merge, they both have access to new territories that were not within their reach before.
While these benefits are usually the goals of an M&A, they don’t occur naturally. It takes extensive planning and strategy to achieve successful synergy with a merger or acquisition, which is why they are commonly overseen by experienced professionals, like us.
We use research and analytics to determine how the combined entity will achieve the synergies suggested from the proposal, and develop a plan for smooth transition into the new business.
No matter the type of M&A you are considering, we can assist with a strategy that will result in positive synergy for all parties.
If you need assistance with starting the M&A process for your company, contact us today to schedule a consultation.