As the business world around us becomes even more challenging and complicated than ever, business leaders need to identify growth opportunities and plans that can help them achieve future success with financial growth.
Growth strategies usually include developing new markets and service lines, expanding the current products and services offered in the current markets, entering joint ventures to develop and expand your services or merging with or acquiring brands and competitors from the current industry or from the same lineage.
In this article, we mention some of the benefits of mergers and acquisitions and take you through the process. By the end, you will know the steps to take for a successful M&A process.
Advantages of Mergers and Acquisitions
Mergers and acquisitions have for long been the preferred mode of operational growth for organisations over the globe. The advantages of mergers and acquisitions far exceed those of other growth strategies. Acquisitions can drastically shift the organisation's position by offering the following advantages:
• Access New Advantages: Businesses can open new doors and access new advantages by acquiring another company. The other company would definitely come with their own set of advantages.
• Enhanced Competitive Advantage: Businesses in competitive markets crave competitive advantage. They want to compete with the other brands present in the industry and ensure that customers get the best services possible.
• Service Expansion: A merger and acquisition process can allow businesses to expand their services and enter new markets in new ways. Companies can enter a renewed position of strength once they enter a merger or acquisition.
• Enhanced Relationships: The goodwill your business already enjoys with suppliers and customers can be further amplified after a merger or acquisition process. Being associated with another fully functional firm can help you improve relationships and become more prominent in front of your competition.
• Increased Efficiencies: Economies of scale become more prominent once you grow the scale of your operations. A merger can eventually facilitate organised service distribution and reduce costs in the process. You make orders for raw materials in bulk (get a discount), utilise machinery more efficiently, and give multiple responsibilities to your employees.
• Improve Financial Position: Finally, a merger and acquisition process can significantly help improve your financial position and open new doors for growth and improvements.
However, the benefits mentioned above can only be truly achieved if the organisation implements the merger and acquisition process in a strategic manner. If you're unable to hit the mark in terms of implementation, things can go very wrong. A lack of synergy between the two organisations can increase the probability of conflicts and a breakdown of productivity.
The following section explains the steps you can take to make sure your merger or acquisition process is as smooth and easy as possible.
Steps of a Successful Merger Process
1. Determine Growth Markets
The acquisition process is initiated by identifying and realising growth opportunities in markets, service lines and industries around you. The growth opportunity could be a combination of multiple industries or markets. The growth potential of organisations and markets is determined through extensive research and analysis.
Organisations will have to collect tons of data relating to client demographic, client origin, employers, business programs, services mix, other competitors, utilisation ratios, customer preferences, goodwill and cost/charge position. The research will unearth new facts and figures.
2. Identify Candidates
The next step is to identify possible candidates for the merger and acquisition process. The selection is made by analysing both likely suspects and out of the box candidates. Successful professionals like Lloyds Business Brokers in Melbourne will help make this search easier for you in the long run.
3. Assess Strategic Positioning and Fit
Once you identify a possible fit, you need to assess the strategic positioning of the move and where it will leave. You need to answer some of your questions here, including:
• What are the likely benefits that you can get out of this acquisition target?
• What are the risks that you might encounter during the process?
• How does the target compare to the opportunities present here?
Organisations should run a comprehensive evaluation of the financial data and the credit position of the target entity as well. The assessment should run through the cost, balance sheet and volume considerations of the financial sheets.
4. Weigh the Pros and Cons
Organisations should weigh the possible pros and cons of proceeding with the merger and acquisition. This process will help highlight the possible drawbacks and the benefits of the move.
When you weigh both the pros and cons, make sure that the benefits outweigh the drawbacks so that you can proceed with the merger accordingly. Leaders should also evaluate the strategic implementation of the case and then decide whether to proceed with it or not.
5. Conduct Future Valuation
The fifth step of the merger and acquisition process is to determine the structure of the acquisition transaction and the valuation that is to be followed. The valuation should be authentic and in line with the prowess and the financial statements that the target organisation possesses.
Valuation methods are done through the discounted cash flow approach, through comparison of publicly traded stocks and transaction analysis.
6. Execute Transaction
Once you decide on a valuation, an offer should be put on the table. Both leaders should fully understand the compliance issues, opportunities and risks of the transaction. Have a legal team to perform due diligence and make sure there are no corners left untouched. The parties can negotiate a definitive agreement once the due diligence is over and no glaring errors have been found.
Implement Move and Monitor Performance
Once an offer is accepted and the transaction is executed, organisations should implement the move and monitor all ongoing performance. A successful merger/acquisition process should involve organisations, their HR departments and key personnel. Monitoring ongoing performance should be a key consideration since this is a major disruption. Organisations should make sure that they don't miss anything.
Most mergers and acquisitions fall short on paperwork and compliance. We hope the steps here help clarify the way to implement a successful merger and acquisition process.