Business Mergers and Acquisitions
The Difference Between Merger and Acquisition
A merger is the combination of one or more corporations, or business entities, into a single business entity. This is so as to achieve greater efficiencies of scale and productivity, sales and marketing, and in administering the business. The existing companies’ stocks are surrendered, and the new company’s stocks are issued in its place. A merger can be classified as horizontal (two companies in direct competition), vertical (a company and its supplier or customer), a conglomeration, product-extension, and market-extension.
An acquisition is when a strong (or large) company buys a weak (or small) company(s) to create a more competitive, cost-efficient company. From a legal point of view, the smaller company ceases to exist, and the buyer absorbs the business. The large company’s stock continues to be traded while the small company’s stock ceases to exist.
When companies come together they can achieve cost efficiencies in the delivery of goods and services, sales and marketing, and the administration of the business. In a nutshell, they can take advantage of synergistic opportunities in the following four domains:
Economies of scale – size matters.
A large company placing large orders has the leverage of negotiating large discounts from its suppliers. This will affect every department of the company and may include everything from electricity bills to marketing and advertising.
While some mergers and acquisitions may lead to retrenchment, they can ensure better staff utilization, thus improving the company’s productivity. The new company is able to have a healthy-looking balance sheet with all the money saved due to lesser employee numbers in selected departments.
Expanding market reach
Mergers and acquisitions is a very effective tool when a company wishes to penetrate new markets and grow its revenues. It expands the newly-formed company’s distribution and marketing channels, while presenting new sales opportunities at the same time. Acquiring a company that already serves the geographical area you want to reach, is a far better option than trying to grab a foothold in that market through aggressive marketing.
Accessing new technology
Google acquiring YouTube, or Facebook acquiring WhatsApp, are classic examples of this. Instead of spending millions of dollars on research and development, and that too in a field where you have already lost the first-mover advantage, large companies prefer to buy-out the proven technology. This way, they get to stay on top of technological developments and maintain their competitive edge.
What Can InCorp M&A Services Do For You
The famous Greek philosopher Aristotle once noted that the whole is greater than the sum of its parts. This is the supporting principle that we, at InCorp, follow when providing M&A services.
We plan for the combined entity to achieve its desired synergies after the M&A; we analyse and prepare a blueprint of how these synergies will be achieved; and finally we execute the said blueprint.
It is important to note that there are a few things you need to take care of to get your company ready to be merged or acquired. This includes cleaning up the balance sheets, getting all financial statements audited, discontinuing poorly-performing products, cutting down fringe benefits, and removing any conflict of interests. Do remember that businesses or corporates will expect to see a professionally-run business when they do their initial due diligence, and only then will the merger be ratified.
Our business brokerage service experts will guide you in every step of the way – as described above – to ensure a successful M&A.
As noted in a 2015 KPMG study, almost 83 percent of all M&As fail due to poor communication, flawed intentions, lack of management foresight, inability to overcome practical challenges, loss of revenue momentum, or because of external economic factors. We are here to make sure you are the 17 percent.
Let us execute your M&A successfully
From business brokerage to execution, synthesis to integration, we ensure your M&A is successful and delivers value.