An exploration of the nature of mergers and acquisitions can lead to some pretty fascinating results. Ostensibly, the goal of an M&A mega deal is to strengthen the position of the company while maximizing returns for their shareholders. With a purely financial slant in mind, an M&A deal makes a ton of sense. Having said that, there have been notable high-profile companies who have used M&A deals to enrich themselves, protect their jobs, and to squash their stockholders. While those negative deals absolutely exist, we feel like they are a poor representation of the overall intent of the action. Today, we are going to explore the positive impact that a merger and acquisition can provide to all parties involved.
Advantages of Mergers and Acquisitions
While we conflate mergers and acquisitions, they are two different processes that entail different actions. At face value, an acquisition is a simpler process. The company purchasing the major stake will take control of the business entity while the selling party will retain a minority stake or be phased out entirely. A merger is different, however, as it requires two corporate entities to work together toward becoming an entirely new group. Both processes have their place in our modern world and both processes can lead to the following benefits.
1) The Pooling of Mutual Resources – When two companies merge together, they pool their resources. In many situations, a merger will entail two companies with dramatically different sets of skills. A great example of this would be a business loaded with a sleek management system working together with a larger business that has a broader outreach. With their skills combined, the conjoined company will be able to maximize their bottom line.
2) Boost of Organic Growth – When two competitive companies in the same sector are competing over a similar demographic, they both suffer. Companies that embrace the concept of M&A will realize that by pooling their resources, they both gain equal access to a larger demographic of potential clients and customers. By merging, the two entities will be able to reach more customers while using fewer resources.
3) Competition Reduction – When we talk about acquisitions, the primary goal will always be to increase the bottom line while reducing the potential for competition. A savvy acquisition can open up a new market for a pre-existing business that will suddenly be armed with the resources needed to take advantage of the opportunity.
4) Maximizing Resources – Finally, we want to highlight the fact that mergers and acquisitions can benefit all parties involved through a reduction of costs, overhead, and resource expenditures. While this makes sense when talking about factories and physical inventory, there is another layer to consider. Research and development is a costly process that can take time and money to accomplish. A savvy business can look to a pre-existing IP as a shortcut to the market. With a solid M&A offer, both companies can walk away from the table feeling like they got the better part of the bargain. What’s more, both companies can still be correct.