In uncertain times, businesses have learnt to be more agile and opportunistic to survive and thrive. One way to do this is through mergers and acquisitions.
By pursuing underperforming competitors or businesses with complementary capabilities, you can quickly build market share and improve your business’s bottom line. In this blog post, we will discuss some of the things you should consider when it comes to mergers and acquisitions – and where to find opportunities.
Mergers and acquisitions
A study by KPMG found that mergers and acquisitions were the most common form of growth for global businesses in 2021, with 2022 results set to be even greater.
Mergers and acquisitions continue to be a popular business growth strategy for companies of all sizes. In the current environment, mergers and acquisitions provide an opportunity to gain access to new resources (including human resources), markets, products, or capabilities at a lower cost than building from scratch.
Where to find opportunities
The first step in mergers and acquisitions is finding potential targets that are both financially sound and share a similar business model to yours. You can use industry reports, financial databases, and professional advisors to find suitable companies.
To maximise your potential for success in mergers and acquisitions, you need to find a partner who matches your business goals and values. It’s crucial to select an organisation that shares a similar vision for the future, can provide necessary resources or talent, and offers economies of scale.
Additionally, make sure you consider the cultural compatibility of merging the two businesses – they will need to work together harmoniously if the merger is going to be a success.
5 Key steps to mergers and acquisitions
Research
As any business decision should be well thought out and researched before action is taken, mergers and acquisitions are no different. Researching the company that you may have interest in will help you assess if it would be an ideal fit for your business and what advantages this could bring.
Strategy
Consider not just the end goal but also an overarching strategy when it comes to mergers and acquisitions. For example, the approach you would take to merging with another business, either organically or as a potential acquisition target, should all be considered carefully before making any decisions to ensure success.
Planning
The planning of mergers and acquisitions is important and involves a broad range of activities. Businesses should consider the resources needed to integrate operations, identify potential risks, review legal documents, develop transition plans and establish communication protocols between teams.
Additionally, assessing the cash flow implications of any mergers or acquisitions is important to ensure a business can endure any financial slumps resulting from such a transaction.
Due diligence
Once you’ve identified a suitable target company and established preliminary terms of the agreement, you need to conduct due diligence on their business, verifying facts, assessing risk, and uncovering any hidden liabilities or potential roadblocks.
You should consult a professional advisers/accountant to assess the company’s financial health, tax records, customer contracts, marketing materials and strategies, corporate governance standards, compliance with regulations, intellectual property rights, and more.
Integration
Once you have completed due diligence and decided to move forward, it’s time to integrate your two businesses into one. Integration can be a complicated process that requires significant resources from both companies to:
- You will need to ensure teams are properly structured and managed.
- Identify areas where costs and operations can be streamlined.
- Transfer customer data between systems.
- Align processes for sales, production, and operations; and
- Ensure that everyone is aware of the new corporate culture.
Integrating both organisations in a particular way to ensure you maximise value is essential. Developing a clear vision of where the combined organisation is going and what each team member can do to help make that vision happen will be crucial to ensure a smooth transition.
Things to consider
When evaluating potential mergers and acquisitions, it’s important to consider several elements, including, but not limited to, the following:
Tax implications
Mergers and acquisitions can have a significant impact on your tax situation. Changes in business structure could result in different tax implications for you and your company due to factors such as changes in taxation laws or different accounting practices between the two companies. Therefore, it’s essential to understand any related tax obligations before signing off on an agreement.
Consulting with advisers/accountants is essential to ensure you’re properly accounting for all potential tax consequences associated with mergers or acquisitions.
Financial considerations
It’s important to consider expected costs and benefits when pursuing mergers and acquisitions. First, calculate the cost of the deal, including debt/equity, legal fees and operational costs associated with integrating the two businesses. Next, consider how long it will take to realise expected returns from the acquisition or merger and whether those returns are sufficient to justify its overall cost.
Legal and regulatory hurdles
It is also important to consider potential legal and regulatory hurdles associated with any mergers or acquisitions. Any intellectual property laws or industry regulations must be accounted for to ensure compliance.
Adequate resources
Businesses must make sure that there are sufficient resources to ensure the successful integration of the two entities. Mergers and acquisitions can take considerable resources in terms of personnel, materials and training costs.
Costs involved
Finally, mergers and acquisitions come with significant costs, including debt/equity, legal fees, taxes, and advisers/accountants fees. Therefore, businesses must consider these costs before committing to a merger or acquisition to avoid any surprises down the line.
Final thoughts
Ultimately, mergers and acquisitions can create great opportunities for businesses to grow their market share and ability to compete more effectively in 2023. However, it is important to consider all aspects of the merger or acquisition process before taking action, including identifying potential risks and laying out a plan for successful integration. By understanding mergers and acquisitions’ businesses can gain a competitive edge in their respective markets.
Ledge – Supporting businesses in 2023 and beyond
In 2023, with so much uncertainty surrounding the global economy, mergers and acquisitions could be a great way for businesses to expand their operations while staying ahead of the curve.
Ledge Finance can assist if your business is looking at merger opportunities now or in the future. Speak to your Ledge Finance Executive, or contact our offices on (08) 6318 2777. Our finance experts are well-versed in providing debt solutions for business mergers and acquisitions.
FAQs about mergers and acquisitions
A merger is a business strategy where two companies combine to create a single company. The resulting entity is larger and has more resources than the two previously separate entities. Mergers can be done for various reasons, such as cost savings, increased market share, or available talent.
An acquisition is a business strategy where one company takes over another and merges the two entities. The primary company (known as the acquirer) acquires all assets, liabilities and operations of the other company (the target).
The primary difference between mergers and acquisitions lies in the degree of control. When two companies merge, they can both retain their separate identities or consolidate and continue to operate within a larger entity. However, when one company acquires another, the acquiring company gains full control over the target company.
The most common methods of financing mergers and acquisitions are cash, debt and or equity. Cash payments are usually only used when the buyer has enough liquid resources to cover the purchase price. However, if the acquirer doesn't have sufficient cash on hand, it may opt for an all-stock transaction/equity. In some cases, part of the purchase price is paid in cash and part is paid with stock/equity.
