There are many ways that you can grow your company; scaling, innovation or strategic alliances to name but three. However, for many businesses, mergers and acquisitions are becoming the strategy of choice.
So, why is that?
Well, first off, M&A’s are much faster than organic growth.
They can be a quick way for a firm to enter a new market, add new services, and gain valuable expertise. In addition, a merger or acquisition can sometimes help a company overcome some particular insurmountable barrier to entry or help it to acquire some intangible assets, such as a competitors particular unique branding that is a competitive advantage.
Also there may be a business opportunity or threat that suddenly appears that requires radical and decisive action and an M&A might just be that strategy.
Below we discuss five reasons to consider an M&A strategy to enable your organisation to maintain its competitive advantage.
1.Add Critical Capabilities
In today’s fast changing, increasingly highly regulated, complex business environments organisations are vulnerable to skill gaps, compliance issues and ultimately competitive weakness. In many cases a well thought through M&A can address these challenges as well as add value to the company.
2. Add Expertise and Intellectual Property
Allied to the first point, an organisation is only as good as the talent and expertise it employs. Mergers & acquisitions are also an effective way to acquire and secure valuable intellectual property (IP) which has become the new currency of modern business.
3. Create a Stronger Combined Business
In many cases the right merger can result in significant cost-cutting and/or money-making opportunities by taking advantage of overlapping operations or resources and consolidating them into one entity. By combining two organizations you can reduce competition in the marketplace, open new territories, offer access to new markets, expand customer bases and provide new sales opportunities, all of which can potentially increase revenue.
Similarly, a strategic merger can effectively reduce costs by combining facilities, workforces, and business units.
4. Develop Better Products/Services and Enhance Customer Experience
Joining forces with another company can create innovation in manufacturing, distribution, design and research and development.
Also, as Peter Drucker once said, “The purpose of business is to create a customer.”
And so the purpose of a merger is to create a more satisfied customer. Ask yourself during the merger process, “How does my customer win?” If you can point to more customer service offerings, better pricing, innovative products and an improvement to the customer experience, then your merger makes sense.
5. Reduce Risk
To avoid uncertainty and the risk of internal development, external acquisition can very often be the way forward and if properly planned will provide an immediate value that includes a turn-key, operational new service, along with a built-in customer base and target audience.
So, should you consider an M&A as part of the growth strategy for your business?
Well, that really depends on your specific company, goals and objectives and the dynamics of the market you are operating in. As well as operating with the necessary due diligence and engaging with the right outside experts to help you in discovering all their is to know about your intended acquisition, it is also prudent to ask, and be able to answer, the following post M&A questions:
- How will the merged firm generate organic growth?
- What other opportunities will exist for the new-and-improved organization?
- Will the ability be there to increase both revenues and profits long-term?
If you can satisfy yourself as to the answers then you can determine whether this is the right growth strategy for your firm.
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