Mergers and Acquisitions (M&A) are a corporate restructuring strategy for business growth that is widely used worldwide, especially to enhance competitiveness and productivity in companies.
This strategy involves the purchase, participation, association, or control of a company, companies, or assets from other companies that can help a second company rapidly grow in its sector or in a new field or location, without creating a subsidiary.
Mergers and acquisitions offer benefits to both parties involved. By combining resources, both companies can:
- Expand their portfolio of services or products
- Add new customers or channels
- Provide talent, expertise, and knowledge to each other
- Reduce overhead expenses and lead more efficient operations
- Create new sales opportunities and expand into new markets
- Open up a new business model
- Reduce the time spent on learning or developing the expertise provided by the acquired business
Motives for Mergers and Acquisitions
One of the most common arguments for engaging in this type of transaction is the belief that there are business synergies that allow two companies to work together more efficiently than they would separately. Such synergies can result from the combined ability of the companies to exploit economies of scale, eliminate duplicated functions, share managerial expertise, and raise larger amounts of capital.
However, the more specific motives for engaging in mergers and acquisitions are:
- Growth: Carrying out a business merger or acquisition is a cheaper, faster, and less risky growth strategy than expanding a company’s operations organically or internally.
- In specific cases, an organization may have a unique opportunity that will close quickly, and the only way to take advantage of it is by acquiring a company with the necessary competencies, resources, and complementarities with the acquiring company. Likewise, these transactions eliminate a competitor or potential future competitor.
- Diversification: Diversification is an external growth strategy and sometimes serves as a motive for a merger or acquisition. For example, if an organization operates in a volatile industry, it may decide to engage in a merger or acquisition to protect itself against market fluctuations. Another example is when an acquiring company targets a company in a different state or country, thus achieving geographic diversification.
- Synergies: Synergy occurs when the whole is greater than the sum of its parts. For example, in mathematical terms, it could be represented as “1 + 1 = 3” or “2 + 2 = 5.” In the context of mergers, synergy means that the performance of the companies after a merger or acquisition will be better than the sum of their performances before the merger or acquisition.
- Acquisition of Required Management Skills, Assets, or Technology: The target company may have management skills, assets, or technology that the acquiring company needs to improve its performance, profits, revenues, cost reductions, productivity enhancements, etc. This can become a motive for a merger.
Unlock your growth potential through mergers and acquisitions.
In conclusion, mergers and acquisitions can be powerful growth drivers for companies, providing significant opportunities. While potential risks exist, experience has shown us that the benefits of leveraging inorganic growth engines outweigh the risks.
At Fiduvalor, we assist you in carrying out the acquisition or merger of companies at the right time to achieve success. Engaging in mergers and acquisitions is always a challenge, and choosing the appropriate financing and agreement structure has been particularly challenging. That’s why we are here to provide guidance and support throughout the entire process.