While mergers and acquisitions may seem a long way down the line for a young company, it’s essential to know more about them, and how they can make their way into the firm’s long-term strategy – something that should already be prepared in advance. While used interchangeably, mergers & acquisitions have two different meanings.

Company mergers occur when two companies consolidate into a new entity with a new ownership and management structure.

Company acquisitions, on the other hand, do not create a new business entity. On the contrary, the small company ceases to exist and becomes part of the larger company.

Categories

There are many branches of M&A, namely;

1. Consolidations: uniting two core businesses and forming a new corporate structure.
2. Tender Offers: when one company offers to purchase the outstanding stock of the other firm at a specific price rather than the market price.
3. Acquisition of Assets: buying the assets of another company
4. Management Acquisitions: company executives purchase a controlling stake in another company, thus taking it private.

The top mergers and acquisitions deals are instrumented by some of the best M&A consulting firms. There is a lot of planning and finesse that go behind mergers & acquisitions strategies that must be set in place to effectively handle a takeover.

Mergers & Acquisitions Strategies

Some of the approaches used by M&A consulting firms are:

1. Horizontal merger: Horizontal acquisition is when two companies in direct competition with each other sell the same products.
2. Vertical merger: Between firms operating at different stages of production.
3. Congeneric mergers: Two businesses that have the same consumer base in different ways.
4. Market-extension merger: Two companies that sell the same products to different markets.
5. Product-extension merger: Two companies selling different but related products in the same market.
6. Conglomeration: Two companies that have no common business interests.

Financing

Seeing recent M&A deals on TV, one can’t help but wonder how companies manage to pay off huge sums of money to fund company mergers and company acquisitions. Obviously, there’s a lot of background due diligence that surrounds an M&A deal. Each company would weigh in their options, run an inventory check and then determine the risk-to-reward ratio. With that being said, here are a few ways how companies fund their deals:

1. Cash
2. Stock
3. Debt
4. A combination of the above.

Benefits

Now that you’re equipped with this knowledge, we move on to answer the question of how advantageous are M&A deals, and if they are worth the resources used to execute them.

1. Economies of Scale:

Include:

• Increased access to capital,
• lower costs,
• better bargaining power.

2. Economies of Scope:

Reduction in production cost of one product because of the production of another related product.

3. Synergies:

The value of combining forces and resources – attacking the market together in contrast with doing it by yourself

4. Opportunistic Value Generation:

Purchasing a company for much lesser than its earning potential – making a substantial ROI.

5. Increased Market Share:

Eating up the market capitalization by effectively killing off competition.

6. Higher Levels of Competition:

The newly synergized firm is ready to take on more challenges now that it’s equipped with better resources.

7. Access to Talent:

Having a wider range of skills to benefit from and having better access to the labour market.

8. Diversification of Risk:

Risk is spread across various operations, and losses incurred from one part of the business will not be hugely disastrous because investments are spread across different markets.

9. Faster Strategy Implementation:

Because of the resources a merged company has at hand, it can achieve its targets in let’s say 5 years compared to a smaller firm that’d take 10.

10. Tax Benefits:

If the buying company purchases a firm that’s in a favourable tax environment, it can benefit from lower costs and lead to direct profitability. It might also be subsidised according to local regulations.

Recent M&A Deals

Since the opportunities presented by M&A deals are plenty, it’s no wonder by companies would prefer to opt for this route. Here are some of the companies that have made blockbuster deals of late:

Source: https://byjus.com/govt-exams/mergers-acquisitions-india/

Parting Words

Knowledge is powerful. But knowing what to do with that knowledge is even more so. If you want to be in this for the long haul, set a long-term target for your company. Ask yourself how big you want to be. Then ask yourself what it will take for you to get there. M&A is critical to growing exponentially, yes – but how does it fit into your business? You will need the right amount of experience, insight and assistance on your side to ensure that the deal delivers its utmost value. Give the pros a call at +1-213-600-7272.