Different Kinds of Mergers and Acquisitions

Mergers and acquisitions (M&A) are usually either strategic or financial. The latter of the two is usually a transaction that is primarily done to act as an investment, to earn a quick return, or with another financial purpose in mind. In other scenarios however, strategic M&A transactions can be done in order to solve business problems or take advantage of opportunities. For example, this kind of M&A may allow said company to do the following:

• Break into a new market
• Add a new kind of product to a lineup
• Gain industry credibility
• Gain intellectual property (IP) and/or expertise
• Break into new market(s)
• Add new key skills
• Expand into other, new facilities
• Change the power balance in a given market

A strategic M&A provides value for both firms involved.

Reasons for Strategic M&A Consulting:

As you can probably see by now, this is not a once size fits all transaction and every instance is unique. Let’s take a closer look at some of the most common reasons for strategic M&A consulting:

• To possibly gain new IP.. as well as talent. This is especially true if you happen to need experienced staff in highly specialized areas such as accounting, engineering, and online security for example. I.P. is a valuable asset as well that can allow a firm with a solid portfolio to obtain a certain dominance over other market competitors.
• To take advantage of both cost and revenue synergies. On the subject of cost synergies, you can actually consolidate two (or more) similar entities in order to cut both operational and resource costs. This can involve eliminating redundant employees, facilities, and other areas of business operation while simultaneously creating a larger overall budget. It really can be a win/win scenario. Revenue synergies can be designed to increase prices, drive sales, and/or shift the dynamics of a certain market. Some companies may use a similar strategy in order to break into new territories, eliminate competitors, enter new markets, expand their audience with cross-selling, or increase sales opportunities. And possibly any combination of the above!
• To fill in certain gaps in something like either client lists or service offerings. These gaps can sometimes occur when either new laws or other external events can result in noticeable marketplace swings. This can create the perfect opportunity for a strategic merger. For example, after 9/11, changing federal requirements allowed many firms with the required experience to earn valuable contracts in national security and defense by partnering with other businesses and agencies in the field as well.
• To reduce the learning curve and save time when plotting a new growth strategy. For one example, it might take more time and money for your company to offer a new service than it would to acquire the capacity to do so in the form of another business that already has an existing customer base.
• To add a new business model. An example of this could be shifting from the billable-hours model common among many professional services to a flat fixed fee, subscription, or performance incentive model instead. If you want to offer a new type of product or service, why not acquire a firm that is already providing that product or service effectively already?

Planning a Successful Business or Company Acquisition:

Each M&A transaction must have an inherent strategy in mind. No one-size-fits-all formula for a successful deal exists, although it helps to have good ideas that are clear cut and very specific. When the purpose of an M&A is vague and strategic rationale is somewhat lacking, the deal is more likely to either fall apart or not end up profitable.

Successful strategies tend to fit one of these six frameworks:

• Improving a target company’s performance
• Expanding market access to products
• Gaining new skills and technologies
• Scaling within an industry
• Removing redundancies
• Helping promising new companies thrive

In order to improve a target company’s performance, the acquiring company will often reduce costs for the purpose of improving their cash flow as well as profit margins, often while speeding revenue growth. This is actually a fairly common strategy among many successful private equity firms. Expanding market access to products is a good strategy when the company to be acquired has innovative products but are too small to expand their market reach. This is a common strategy in the pharmaceutical industry for example. Tech companies often purchase other companies that have the skills and IP they need to improve their existing product and/or service lineup. This allows them to avoid royalty payments as well as gain power over competitors at the same time.

Scaling within an industry allows companies to take advantage of economies of scale. This is much more common for smaller acquisitions since most larger companies are already at scale. Reducing excess is another strategy that is used when a specific market sector ends up with more supply than it has demand. Energy companies, for example might purchase and close smaller plants as new competitors come into the market. If you need help with your merger and acquisition strategies, the best strategy is to talk to a professional expert so they can help you make sure your strategy makes as much sense as possible.

These are just a few facts about mergers and acquisitions that you may not be aware of. Hopefully you found these helpful. If you would like to learn even more about how you can streamline the efficiency of your business finances, then you are more than welcome to contact us and we will take a look at your unique situation and offer some sensible solutions that would work best for you!

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