Mergers and acquisitions are referring to the combination of two businesses. They are, on the surface, complex business processes. Let's show you what you need to know.
The Difference Between a Merger and an Acquisition
A merger is when two businesses combine to form one new business. An acquisition is when one business purchases another, so it owns this business entirely. Mergers are considered friendly in nature, as both companies are combining for a mutual benefit. Conversely, acquisitions may be hostile, but they can also be friendly. The term “hostile takeover” is usually used in lieu of the term acquisition. When an acquisition is considered a hostile takeover, the board or shareholders do not want the company purchased.
How M&A Can Benefit the Buyer
A successful merger and acquisition can enhance the value for the seller and the buyer. The buyer can benefit as it removes competition, which may give rise to what is called a “horizontal integration.” This is a term where you are purchasing a competitor to remove it as the competition.
In addition, it can accelerate the time-to-market with a newer selection of channels and products and services. It also benefits the buyer by using vertical integration. This allows the buyer to achieve efficiency over a supply chain by purchasing either the supplier or the customer.
A successful M&A can also reduce excessive cost. Using synergy, this can reduce redundant infrastructures and jobs, which is a benefit that can be shared by the buyer and the seller. If they anticipate lower costs going forward, the buyer can afford a higher purchase price.
What Happens If an M&A Is Unsuccessful?
There will be times when immersion acquisition can be unsuccessful. If it is unsuccessful, it can hurt the buyer, as the seller has crashed out, and destroy the value of the business. An M&A can fail for a number of reasons, including the following:
Misvaluation. The numbers and assets might not be the winning factors.
Limited owner involvement. Owners are not always as hands-on as they should be. When owners leave it to their advisors, they will have a limited role, and it is important to have the owner involved during every step of the process.
A poor integration process. One of the biggest challenges after any merger and acquisition is the integration of two companies. This can be offset by identifying crucial projects and services and key employees. This helps to identify the efficient processes.
Issues with cultural integration. Many mergers and acquisitions on a global scale have suffered from cultural integration issues, including cultural differences, as well as different rules and regulations for each location.
A poor backup plan. Over 50% of M&A deals fail which can cause further losses.
Mergers and acquisitions are a great way to boost the growth of any company. But the process can be a precarious one. M&A deals result in failure. However, this can be offset as long as the owners and associated participants are aware of the potential benefits and drawbacks.
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