Business professionals generally ascribe 5 reasons for mergers and acquisitions: outright purchase or absorption, ...
Business professionals generally ascribe 5 reasons for mergers and acquisitions: outright purchase or absorption, creation of a new company, acquisition of significant assets, tender offer for stock, or a hostile takeover. All are legitimate reasons, but they may not convey the full benefits of mergers and acquisitions to each company. While the transaction or operation may seem one-sided, in truth, a merger and acquisition can often make strategic, financial, and organizational sense for each entity, providing multiple benefits.
Strategic benefits are often the driving force behind many M&A decisions. Strategy is about improving market positions, enhancing competitive advantage, and embracing innovation. A merger or acquisition often accomplishes essential aspects of a strong corporate strategy, resulting in tremendous benefits for one or both enterprises.
The value of global M&A deals accounts for $3.4 trillion, primarily accomplished in the United States. While monetary value may seem to provide reason enough for these arrangements, each deal is driven mainly by competitive advantage and market share — the forces of revenue and profit.
Mergers and acquisitions result in increased market share as each company brings its established audience to the table. True, a merger or acquisition does not guarantee maximum combined consumer numbers; some customers will find alternative brands to support. Still, a healthy M&A process aims to limit client and staff attrition to the respective 5% and 15% departure rates typical for most firms year over year.
The possibility of entering new markets is among the most advantageous benefits of mergers and acquisitions. Growth is a top priority of any business or CEO, and the fastest way to grow is to enter and explore new markets.
By acquiring or merging with a company operating within markets outside of or inaccessible to current operations, a business automatically gains new customers. The beautiful part of the M&A process is that a business typically acquires the new market with limited difficulty, avoiding complexities of language barriers, cultural differences, and international regulations thanks to the other company's existing connections.
Mergers and acquisitions can allow a business or partnership to corner the market, securing and enhancing competitiveness. The competitive advantage of M&As is one of the reasons the FTC and the Antitrust Division of the Department of Justice play a role in many high-level merger deals.
In a mixed economy like the U.S., healthy competition is essential to capitalistic goals and free market fair play. The government maintains a socialistic arm by ensuring the common good and managing economic and trade power. Without government oversight, mergers inevitably lead to monopolies.
Innovation is the lifeblood of any business. If a company is not constantly evolving to meet new consumer and social demands, it gets left behind. Technology migration and acquisition is one of the greatest benefits of mergers and acquisitions.
Technology plays a significant role in strategy, operation, and outreach in the modern world. Companies constantly vie for the latest technological trends to impress and recruit consumers and talent. Sometimes the easiest way to evolve technologically is through a merger with a competitor with the desired tech.
While strategic motives may drive many M&A decisions, monetary gain and relief are always pieces of the puzzle. A company does not move forward with a merger or acquisition if there is not some financial merit. A review of most M&A agreements sheds light on four primary financial benefits.
Reduction of costs is among the leading benefits of most mergers. Company A may not have the same access to specific suppliers or trading partners as Company B, resulting in a greater operational cost. By merging with or acquiring the operations of Company B, Company A can secure an operational advantage by unifying ventures and partners.
The M&A process can allow a company to boost its revenue and growth through diversification, another of the top benefits of mergers and acquisitions. Business is often survival of the fittest — that is, the companies that successfully reach the most consumers.
A diverse portfolio with an array of products and tools allows a business to reach more people. Also, acquisition can help a business corner future markets and shore up potential operational or marketing weaknesses.
Many companies fall victim to the ebb and flow of the economy. In harsh economic climates, even the largest corporations can struggle to survive. A merger or acquisition provides businesses an opportunity to pool their resources; it can also have impressive tax benefits.
Acquiring a company in another country has the benefits of talent access and lucrative markets and may also open the door to favorable tax reductions. Many countries offer tax incentives to ensure business ventures and a healthy economy, but these benefits only come after the finalization of the M&A.
The desired outcome of all mergers and acquisitions is the 1+1=3 mentality, which means the total market capitalization or value of the companies' stock shares increases. Both companies are seeking a market cap that is more than each cap added together.
Beyond the strategic and financial benefits of M&As, companies experience organizational benefits. From enhancing knowledge to adopting better company cultures and attitudes, mergers and acquisitions often combine the positive attributes of each company involved to create a new, more effective entity.
Knowledge is a sought-after commodity in business, and it derives from the talent hired. People are the most valuable resources and assets of an operation. Experienced workers bring not only knowledge of processes and procedures but more general expertise and innovation.
Some companies are better at talent acquisition and retention. The M&A process can allow an acquiring company access to human resource processes and negotiation tactics that enable better recruitment techniques.
In addition, combining resources and market cap can make a company more appealing to talent. Often companies will receive an influx of applications when M&As are favorable.
Mergers aim to create a collaborative culture built on teamwork. The goal is to unify the best parts of each organization to create a more effective, lean, and prosperous enterprise.
There are many benefits of mergers and acquisitions. The ideal outcome of every M&A process is a stronger, more successful entity. However, to effectively create a lean and efficient organization, companies must be willing to move away from legacy systems and embrace current technologies, such as cloud storage. Contact Cloudficient to learn more about bringing efficiency to the technological side of your merger or acquisition process.
With unmatched next generation migration technology, Cloudficient is revolutionizing the way businesses retire legacy systems and transform their organization into the cloud. Our business constantly remains focused on client needs and creating product offerings that match them. We provide affordable services that are scalable, fast and seamless.
If you would like to learn more about how to bring Cloudficiency to your migration project, visit our website, or contact us
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