The free market economy allows businesses to combine powers and create an evolved entity with enhanced features that can benefit an organization and its clients. If you’re considering whether a merger or acquisition is the right choice for your company, review some benefits of M&A and missteps to bypass.
Increased Market Share
Mergers allow organizations to break into new geographic markets and compete more effectively in those regions. The boost to your bottom line can be exponential. The growth in market share means your new company can have more influence on price and distribution than competitors.
However, the changes you make as you blend the two businesses may not appeal to all your customers. Define your target market and create a customer retention plan to avoid losing your most profitable clients.
Improved Technology and Innovation
Mergers provide an excellent opportunity to combine the strengths of two organizations for a competitive edge. By combining financial and intangible assets, your firm can boost innovation, advance technology, and open up new resources. Such advancements can help get projects off the ground faster and improve your company’s standing in the marketplace. Additionally, mergers provide an opportunity to leverage data analytics and machine learning technologies to create more informed decisions about how best to deploy resources.
Of course, merging two sets of software creates various challenges and potential security issues. During the union of the companies, the assistance of a consulting firm can prevent costly errors and long-term mistakes.
Your leadership should look to an agency that can provide a customized IT solution instead of relying on a one-size-fits-all option that may not meet all of their needs. For example, Horizons Consulting helps businesses stay on track for growth and innovation during mergers and acquisitions.
Diversification of Product Lines
Mergers can be a great way for your company to quickly and efficiently expand its product lines. M&A does not always occur between competitors or firms in the same industry. By combining complementary organizations in related fields, you can take advantage of compatible sets of technical expertise, products, and services for upsells and customer retention.
Keep in mind that you shouldn’t try to hold on to every service or product from both companies if doing so will be an unprofitable drain on resources. At times, the wise choice is to sell off a division or eliminate certain offerings to stay focused on revenue-generating activities.
Increased Efficiency and Economies of Scale
By combining processes and materials, you create economies of scale which can reduce operational expenses and create more value for the customer. By sharing resources between two companies, a merged entity may be able to produce much more in the same time in comparison to working independently. Mergers that capitalize on synergy and efficiency give your company a chance to offer better customer experiences and open up further opportunities for growth.
Mergers can also help coordinate operations and eliminate redundancies, leading to more significant cost savings across multiple areas. IT professionals have a considerable role to play here since they often have insights into how a company can efficiently combine different systems and technologies with minimal disruptions. Review legacy systems against new workflow advances. The possibilities for streamlining processes are endless with the right amount of planning, foresight, and execution.
Remember not to pursue efficiency at the expense of your company culture. Blending two organizations inevitably leads to challenges and disagreements. Possible job cuts can create an overly competitive internal environment. Determine ways to assist departing employees with a soft landing into a new journey and continue to show your existing team members genuine concern and cooperation.
Better Risk Management
M&A can eliminate one aspect of risk by removing a competitor. Even if your new partners are in a complementary industry and not direct competitors, you clear the field of competition for your clients’ dollars. You also deny your rivals access to the resources now in your stable.
You also may be better able to identify and predict risks before investing capital with your additional intelligence and experience. These new resources can help you develop better risk mitigation and prevention strategies that don’t rely solely on insurance or other reactive measures.
While you may have a newfound wealth of assets to improve risk management, avoid becoming overconfident. Trust the experience of your IT professionals and follow proven procedures to evade foreseeable pitfalls.
Creation of Value for Shareholders
The expansion from a merger can create tremendous value for your shareholders. Even the simple announcement of two powerhouses joining together can send stocks through the roof. The boost in efficiency, assets, and diversified revenue streams can raise share prices and bring additional profit potential for investors.
Additionally, when one company acquires the shareholdings of another entity, shareholders may receive stocks that trade at a higher price than the original shares. Thus, stakeholders can enjoy long-term gains through capital appreciation as well as regular dividends.
Whether the price of shares moves up largely depends on how your companies carry out the process. Parties need to maintain an appropriate level of confidentiality during negotiations so that complications do not leak and harm the public’s perception of the deal. Messaging is crucial to ensure that alliance appears to be a win-win for everyone.
Timing is also key since the exchange ratio and cash consideration affect share prices. The erosion of one company’s shares as the other’s rises could negate gains. A collar agreement can hedge that risk.
Mergers and acquisitions can offer a host of potential tax advantages for any business. For example, if two companies located in different states come together, the combined entity can take part in more favorable tax legislation. Joining with a company from another country may enable access to global tax breaks.
Remember that governments will be on the lookout for possible antitrust violations. Additionally, lawmakers often craft regulations that make it difficult for taxpaying organizations to leave domestic shores. You may need to create a shrewd plan to complete the deal.
A business acquisition or merger offers a prudent strategy for creating new revenue streams, increasing profitability, and encouraging expansion. When you’re ready to boost your company’s reach, remember to consider the possibility of M&A.