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Last Updated on by Noni May
The term to refer to two businesses combining is mergers and acquisitions. You’ll see this noted as M&A in most cases. It is a great, and often coveted way to achieve growth and long-term strategic goals. Waiting for organic growth, or facilitating it is usually much slower than business acquisition.
Although not every M&A attempt will be successful in general for a buyer, there is a lot of value. It can accelerate market arrival for channels and new products, using horizontal integration, a buyer can absorb competitors and using vertical integration, a buyer can improve the supply chain.
While all that is happening, there are a lot of opportunities to retain jobs and reduce costs.
When mergers and acquisition aren’t successful, it can destroy the value of the buying company, or they may see the potential savings aren’t as anticipated and take a considerable cash flow hit.
It is often the case that the two companies in question aren’t as valuable as they would be if they were to merge. So, by one party purchasing the other, the value of both combined increases.
As well as this, improving efficiency and gaining a larger market share will be essential parts of a successful M&A.
There are occasions where a merge isn’t handled as well as it should be. There are many risks attached to mergers and acquisitions, which is why it needs to be handled by a specialist.
Harvard Business Review published research, in 2011, that showed the failure rate of M&A to be as high as 90%. Deals can collapse at any point and come with some financial loss for all parties involved. Mergers and acquisitions are often of interest to the public, and when a deal goes ‘wrong’, the share price for both companies can fall significantly.
Along with the negative press and public response, employee productivity can be reduced. The uncertainty can cause issues with staff retention too.
A merger, like a name suggests, is the merging of two (or more) companies. The consolidation of companies.
An acquisition is when one company is taken over by another.
There are three main types of mergers.
In the 60s and 70s, you were also likely to hear the term conglomerate mergers. These take two different companies from different sectors or locations, and they join forces. It is typical in conglomerate mergers for the companies to have completely unrelated products.
The conglomerate merger means that both companies now have access to a vast market, that wasn’t possible before.
Both small businesses and large businesses will enter into M&A for the same reason. It will help to strengthen their positions in their own marketing, increase efficiency in processes, diversify, and gain access to a new market.