Mergers and acquisitions (M&A) are key tools for implementing a successful corporate strategy. Successful companies should always be prepared for strategic mergers or acquisitions. A merger occurs when two or more companies mutually agree to come together to form a new company. An acquisition, on the other hand, occurs when one company purchases another and establishes itself as the new owner. M&A can get complicated. They require thoughtful planning, new ideas, and extensive transaction experience to achieve successful outcomes.
Here are 5 things you should know about mergers and acquisitions.
- Reasons They Happen
M&A is expensive and time-consuming. They can also cause serious problems if not done correctly. Companies should always seek for an M&A when they have valid reasons such as, to eliminate competition or to add to their existing infrastructure. Ultimately, both companies should benefit greatly from the deal. Ensure that you conduct investigations and find out what the other company’s intentions are.
Valuation is basically the price one company will pay to ensure the transaction goes through. It is a combination of cash flow and the time value of money. Ensure that you get the best formula applicable to your situation. Issues revolving around the company’s strength and reputation updated financial records and anticipated revenues in the future are usually key considerations during valuation.
- Due Diligence
Mergers and acquisitions will require a substantial amount of due diligence by the buyer. Before committing to a transaction, the buyer company should ensure that it knows what obligations it is assuming.
Careful planning and proper anticipation will enable the target company to be better prepared for the transaction. Have a due diligence checklist to ensure that you stay organized during the process.
Key things to look at when conducting due diligence are financial matters, technology and intellectual property, customers and sales, material contracts such as loans and credit agreements and all things to do with employment and management.
- Companies Compatibility
One of the most important aspects during mergers and acquisitions is whether the combination of two different company cultures is compatible. A culture mismatch can be disastrous to all parties involved.
Unfortunately, in many M & A, the best financial deal comes from the worst buyer. This leads to employee suffering and regrettable decisions in future. It is therefore important to deal with cultural issues from the onset.
Test the waters by first forming an alliance in the form of a joint partnership. This will enable you to develop a system that will resolve issues in the early stages.
- The Aftermath
A company contemplating an M&A should consider the long-term consequences of the offer. Both companies should look at all aspects and find out what exactly will happen subsequent to the closing and all special terms and conditions put in writing.
The target company should find out in advance if there is an opportunity for a cash out for the premium especially if the transaction is an all-cash deal. For the acquirer, the size of the potential target should be considered. This is because; a larger company will have a bigger risk to the acquirer as compared to a smaller company.
There you have it. 5 things you should know about mergers and acquisition. Successful M&A result in enhanced cost efficiencies and revenue enhancement that benefit both parties. For more information on mergers and acquisitions kindly visit the built in Chicago website at https://www.builtinchicago.org/member/muhammad-azfar.