Mergers and Acquisitions (M&A) have become a popular strategy for business growth and success as they offer diversification and market positioning. Most small and medium-sized companies opt for M&A due to the stiff competition they face in the marketplace from big companies that have control in the industry. Mergers & Acquisitions may involve purchase of majority stake, exchange of shares for assets, purchasing of assets, and exchange of shares for shares; and can take place between firms in the same industry, firms dealing with same products and in the same markets or separate markets, or firms that are totally unrelated and with different products
Before thinking of growing your business through M&A you must consider the following to evaluate if your business is ready for the expansion.
- Motives behind the acquisition,
- Good integration plan is in place,
- Use of a third party to negotiate for acquisition terms,
- Leadership style to facilitate and manage the growth, and
- Impact on products, customers and the organization.
Why Should a Business Consider M&A?
- Synergies – By combining business activities, the overall value and performance efficiency of the two merged companies tends to increase.
- Risk Diversification – M&A may provide the company with more revenue streams, enabling the merged company to spread its risk across revenue streams and enhancing sustainability.
- Research and Development – M&A provides greater resources for research and development by combining knowledge, human resources and capabilities, and funds of the acquirer and the target.
- Growth – M&A gives the acquiring company an opportunity to grow its market share without doing significant heavy lifting.
- Economies of Scale – Economies of scale associated with growth through M&A include increased access to capital, better bargaining power in the market, lower costs resulting from high volume production etc.
- Tax Advantages – Tax advantages can be achieved if the target company is in an industry or country with a favorable tax regime.
Conclusion: As much as M&A is a good strategy to hasten growth in business, management should assess its company’s readiness for merging; do due diligence on the target; and prepare an integration plan for effective transition and avoiding failures afterwards