Mergers and acquisitions (or M&As) are the acts of consolidating companies or their assets, with a look to stimulate growth, gain competitive advantages, increase market share, or influence supply chains.
A merger describes two companies uniting, where one of the companies will cease to exist, after becoming absorbed or ‘merged’ by the other.
An acquisition occurs when one company holds a majority stake in the target firm, which retains its name and legal structure, and business operations.
You can grow your business by buying or merging with a smaller business. The process is similar to starting a new business, but Stonelink International want to highlight the importance of recognising the extra steps you need to take to protect your existing business along the way.
So, let’s look at why and how businesses merge and/or acquire a business and the best ways to go about this together…
By combining or merging business activities, your overall performance and efficiencies will increase and spend across the board tends to drop. This is mainly due to the fact that each business leverages off of the other ones’ strengths.
Acquiring a company is a fantastic opportunity to grow market share without having to make any significant changes. Instead, acquirers buy a competitor's business in what is referred to as a horizontal merger. A good example of this would be, a large branded clothing company choosing to buy a smaller bespoke competing clothing company with a lean and trim business model and smart investment in their technology, enabling the smaller outfit to produce more clothes and increase its sales to brand-loyal and social media savvy customers.
Many M&A deals between companies, eliminate future competition and gain a larger market share. These companies are known ‘empire builders.’ However, be warned of premiums that are required to convince the target company's shareholders to accept any offer that comes to the table. It is not uncommon for the merging or acquiring company's shareholders to sell their shares or dump the stock, devaluing the company, in response to what may be perceived as a terrible merger or the company paying too much to acquire the competition.
There is a great saying by Peter Drucker; ‘Culture eats strategy for breakfast,’ and this especially rings true for companies merging and / or acquiring.
Communication plays a vital role when integrating cultural change. Employees are often left confused and can be unsure as to their future during a merger or an acquisition. Identifying cultural changes and onboarding staff as soon as possible will keep disruption to a minimum. With the right investment and focus, employees will understand the changes and as a result embrace future opportunity with the fears.
Be sure to carefully look at each department and position within each business to identify redundancies. Keep in mind, the goal of a merger is to create a stronger, more profitable company. It may be necessary to make cuts or eliminate departments or positions altogether once the company is merged. Technology will play a key role however and wherever possible, choose the most invested employees, the ones that create the most value and nurture and embed them with yourself into the merged firm.
Here at Stonelink International, we understand merging two or more businesses into one, is a common way to improve upon the performance of each individual business by really taking advantage of the benefits each of the businesses has established in their own right. Furthermore, it may make business sense to purchase a firm outright to strengthen your market share or prop up your share price that is lagging due to a lack of resources or leaner business model, in order to keep up with the pace of technological advancement and change.
To asses if your company is ready to merge or indeed acquire a business, take our quick, free and easy-to-use assess your business quiz today.
Alternatively, why not speak with one of our Real Estate Advisors who will be able to assist you? Call now on: + 44 (0) 207 993 4081. Your initial Business Owner Consultation is free!