With evolving businesses, only the most nimble and pioneering is capable of survival. Therefore it is an essential strategic call for a company to decide for any arrangements of mergers and acquisitions (M&A). M&A is considered as a crucial part of a corporate finance world. Two distinct establishments together generate more value compared to being on a separate stand and hence M&A is brought into existence. Companies assess various opportunities in order to amplify their wealth through merger and acquisition. Mergers are the blend of two enterprises to form a single alliance, whereas an acquisition is taking over of one enterprise by the other.
Many steps are involved in M&A; pre-acquisition review is the first step where self-assessment of acquiring enterprise with concerns to need for M&A and evaluation of growth plan is included. In the second step, searching and screening of potential targets to take over is performed. This process is carried out to scan strategic fit for acquiring enterprise. The third step includes the detailed analysis of shortlisted target company also denoted to as due diligence. A negotiation to come to the agreement for a negotiated merger is started after the target company is selected. Agreement to the deal between the two companies is done at this step. The final step is post-merger integration, in this step formal announcement of the approval of the merger by both companies will be done if all the above steps work out well.
A merger is distinguished in three forms, and is grounded on the competitive relations between the merging companies. In a vertical merger, a firm acquires either a supplier or customer, and in a horizontal merger, a firm acquires another firm that sells or produces the similar product. All acquisitions are encompassed by conglomerate mergers, where merging companies are not related to each other.
M&A can take place by purchasing common shares, exchange of shares for assets, purchasing assets, and purchasing common shares. There are several motives for the formation of M&A which includes, strategic realignment, technological change, branching out for higher growth markets, financial collaboration for lower cost capital, upsurge market share, tax considerations, enhancing company’s performance, and to speed up growth.
For corporate M&A transactions, various M&A tools are available and are used by corporates. An important outcome from a study suggests benefits such as reduced timelines and cost reduction, both for post-deal integration and deal execution, are observed with the use of tools. Conflicts decrease during deals through deeper data analytics which helps strengthen assumptions and enhance findings when tools are used. The use of M&A technology tools supports in integrating and reporting. The reason behind the success of numerous deals is the tools which assist in reducing costs, conflicts, and time.
With the advancements in technology all over the world, numerous businesses are thriving. The technology giants are competing for leading artificial intelligence technologies. According to a study, acquiring technology assets has turned out to be the leading driver of M&A pursuits. Besides earning technology, adding to product contributions and growing customer sources are the strategic imperatives of M&A sales. Digital strategy and talent acquisition are the following drivers for the deals.
The converging industries are construction and manufacturing, energy and construction, retail and technology, and telecommunications and technology. Sectors which continue an ongoing move towards consolidation within their industries have the highest expectation for sector convergence. Example of which is merging of healthcare plans and healthcare providers.
To manage share price through M&A and integration, some key aspects need to be taken into consideration. One must ensure that they have strong M&A experienced investor relation support in the pre-deal process. Market and competitive landscape should be apparent to the enterprise. One must beforehand prepare the market for their M&A strategy. The company should plan credibly and take care of deal leak pre-announcement. The rationale must be announced clearly in order to avoid further misunderstandings. Being prepared for the adverse reactions will help manage the situation. The quick wins must be delivered and appropriately publicized. The company must gain customer confidence and good will as it is the most critical aspect of the business. Predicting competitor and counter market reactions will help prepare for the adverse reactions. Deal benefits need to be delivered to the company, and one must demonstrate that they keep public promises.
Mergers and acquisitions most of the time results in several social benefits. They yield economies of scope and scale that improve quality, reduce cost, and increase output. Better technical skills and management, to tolerate on less used assets can be brought by the mergers. So, with the assistance of M&A, we can expect our economy to achieve higher level.