An Introduction to Mergers and Acquisitions (M&A)

Mergers and acquisitions (M&A) initiatives may make companies stronger by efficiently reducing marketplace competition, expanding their consumer base, and creating value greater than each company offers individual. Earlier, Anand Jayapalan had spoken about how mergers encompass more than just a financial transaction. They also represent the blending of assets, cultures, and strategies. Operating procedures, employees, factories, office buildings, equipment and more, come together to ideally create a sum that’s greater than its individual parts.

Companies that merge often enjoy the benefits of each other’s distribution channels and customers. For instance, in case a United States based company acquires a company in Toronto, Canada, the larger enterprise would be able to gain access to production and distribution channels in a new region. This would allow the business to expand their business across borders without having to deal with the expense of building new factories or even marketing to the new consumer base.

Stockholders from both companies typically receive shares in the newly formed entity, even though the exact ratio depends on the terms of the mergers. With assets from both firms backing their investment, stock values may go up. Moreover, merging operational costs can reduce overall expenses and potentially boost profits. In case of an acquisition, one company purchases another’s assets. The acquiring and acquired companies can differ in size and scope, but ideally, larger companies often acquire smaller ones. Post-acquisition, the roles of C-level executives from the acquired company can vary; they might stay on in consultative roles, join the board of directors, or retain their positions if their expertise is deemed valuable by the acquiring company.

The benefits of M&A initiatives are many, including:

• Improved economic scale: A larger company, or one that joins forces with another business would ideally have higher requirements for supplies and materials. These companies can improve their scale through lower expenses, by purchasing the necessary raw materials and/or supplies at higher volumes.  This would ultimately benefit the end consumer as well, as the enterprise may potentially pass those lower costs onto them.

• Lower labour costs: An M&A may result in multiple employees at a company doing the same job. By coming together and doing away with the extra staff, a company can lower its overall labour expenses, while also maintaining a stronger, more effective labour force. Business leaders involved in the M&A might try to review the performance of employees in similar roles and ultimately select the best possible talent for each position in the new company.

• Increased market share: As two businesses operating in the same industry or having similar offerings come together, the newly formed company can enjoy a greater market share. The new company can also tap into the resources that both bring to the business deal. This would help the brand to provide more products to consumers, and gain better recognition in the market.

Earlier, Anand Jayapalan had discussed that M&A can be a powerful strategy for multiple types of companies that are seeking growth, diversification, competitive advantage, and operational efficiencies. The key to successful M&A lies in strategic planning, thorough due diligence, as well as effective integration.