In this blog we take a look at Mergers and Acquisitions (M&A). In simple terms this involves one company acquiring another by way of a takeover (acquisition), or two companies fusing to form a single larger entity (merger).
The main reasons for a company to execute an M&A transaction are to grow its business (by acquiring or merging with a competitor) or add a new line of business to its existing activities. M&A can either be public (when it involves companies listed on a stock exchange) or private (when it concerns companies privately owned by individuals).
In many cases it is wise to consider using the services of a merger and acquisition (M&A) advisory firm that can provide advice on corporate mergers, acquisitions and divestitures.
M&A advisory firms try to match businesses for sale with prospective buyers. To do this, an M&A advisory firm’s services typically include:
- Business valuation;
- Preparation of a pitch including a confidential business memorandum
- Identification of prospective buyers and discussions with these parties;
- Providing negotiation of purchase and sale agreement and other deal-related agreements;
- Assisting with due diligence; and
- Resolving transaction issues throughout the process.
According to Harvard Business Review (HBR) research, at a time when mergers and acquisitions are increasing at a much faster pace across all industries globally, the failure rate of such acquisitions can be as much as 90%.
The reasons for such an alarming rate are myriad such as companies do not do proper due diligence or don’t have a clear long term strategy. However, there are strategies that companies involved in mergers and acquisitions can adopt to mitigate some of the risks of such a deal
So how can you ensure success for your M&A?
Firstly, it is absolutely vital that the process is completely transparent, realistic and involve all areas of management if success is to be achieved.
In addition the following factors need careful consideration:
- Be clear from the very beginning on what matters and why. Where is the added value by doing the deal?
- Estimating synergies is key as by so doing you will also shed light on issues such as due diligence, the structure of deals, and the negotiations that lead up to them.
- As with any business deal it is invariably the case that there is a small number of actions that will have the greatest impact. So identifying them and focusing your resources on achieving those actions is key to a successful outcome.
- Merging or acquiring a company can be draining from both a human and financial perspective, and it can quickly spiral out of control if the businesses have not outlined what they wish to achieve for each stakeholder. So clearly defined goals are essential.
Remember that you will be faced with challenges so make sure your strategy assesses the potential risks and complications that could arise during the process.
Consider expert advice
Mergers and acquisitions require a high level of expertise so consider bringing in an expert who can assess the situation and the planned objectives without any favouritism or bias. An independent expert will help challenge claims, validate business decisions and ensure leadership stays on track in its goals.
In addition, an independent expert should look to ensure employees receive the support they need through the merger or acquisition, and make people understand why the changes are taking place. If this isn’t done there is a risk that they will lose focus, become unhappy and potentially be disruptive for the company.
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