Triggers and Benefits of Mergers & Acquisitions for Business
Friday July 03, 2020,
5 min Read
Businesses carry out mergers and acquisitions (M&A) for various strategic reasons with the view to create synergies, to enhance capability, enter a new market or gain economies of scale. However, leadership team should not look at mergers and acquisitions only from the economic point of view, but they should also look at it sensitively considering the workforce emotions. Any merger and acquisition may cause job redundancies or change in work culture, which affects the workforce morale and creates confusion in their minds during and after the process of mergers and acquisitions. It is important that leadership team communicates with the workforce regularly to keep them updated and answer their queries and doubts. Mergers and acquisitions (and all the resources invested for M&A) may achieve their objectives only if the workforce morale is high. Merger and acquisition consultants/ experts play an important role in guiding the businesses through the process of merger and acquisition.
Mergers and acquisitions don’t generally occur for only one reason, but may have multiple triggers. To know the interests of businesses that act as triggers for mergers and acquisitions, keep reading!
Research and development
Research and development (R&D) is one of the critical departments that generally work 4-5 years in the future. Having a strong R&D department plays an important role to ensure that the company remains competitive in the future. M&A with a company having a strong R&D department may help it to remain competitive in the future.
Unique Product or Service
Having a unique product or service that is difficult to replicate provides a strong competitive advantage. It may be due to the strong brand name that is synonymous with the product/ service or the technology that is difficult to replicate. It enables the company to charge higher margins on product/ service due to no or lower competition.
Having intellectual properties (such as patents, trademarks, etc.) of a particular product/ service ensures that no one can copy them till the duration of those intellectual properties (IP). Patents are important in almost all the industries; however, in pharmaceutical and high-tech industry it plays the most crucial role. It is a cash cow for the companies to milk for foreseeable future. Hence, M&A with companies having strong IPs may help to generate steady income for the future. Business that require help in intellectual property, can seek from legal and intellectual property consultants/ experts.
Efficient operational capability
Having efficient operational capability is important to ensure the cost efficiencies and high quality of product/ services. It plays an important role in ensuring high quality consumer experience with reduced errors, which plays an important role in gaining repeat customers, reference business and revenue.
Access to digital technology
In today’s highly evolving world, there is rapid development and adoption of digital technology in almost every field. Today, application of digital technologies enables businesses to offer seamless and cost-effective consumer experience at their convenience. Hence, it is important for businesses to quickly adapt to these technologies to stay competitive in the market. Many traditional banks are today partnering with various FinTech companies.
Access to digital data
Digital data and digital footprint of consumers enable the companies to track their digital behavior, which can be utilized to provide enhanced consumer experience; it may include providing relevant suggestions for shopping, bill-payment, ad viewing, binge watching or any other. Hence, having access to digital data is of utmost importance in today’s business environment. M&A with companies that have access to huge amount of consumer data such as telecom companies, e-commerce companies and social media players may be helpful to leverage that data.
Robust sales network and last-mile delivery network
It is important to produce high-quality product/ service and increase consumer awareness about them; however, it is equally important to have access to the robust sales network to ensure that the product/ service reach the customer on time in every nook and corner of the geographical market undertaken. It is important to have access to the vast network of distributors, stockists and retailers. In today’s era of e-commerce, access to last-mile delivery network also plays an important role in consumer experience and to stay competitive.
To comply with laws and regulations of different countries
It may not be possible for businesses to leverage international market and expand globally in various countries all by themselves. Along with the challenge of local market knowledge, even the local laws of several countries may not allow them to do so. The laws may restrict the businesses from exporting to various countries and also allow them to enter the market through foreign direct investment (FDI) only in a joint venture or merger with a local player. In that scenario, JV and M&A becomes highly important to enter a foreign market.
Mergers and Acquisitions are beneficial for the businesses in many ways. It helps your business to:
- Gain synergies by combining capabilities to benefit from economies of scale
- Save time by purchasing already available capabilities in the market, rather than developing in-house capabilities from scratch
- Gain competitive edge to become market leader or to reduce the gap with the market leader; eliminate or reduce the competition by buying out the competitors
- Gain the dominance in market share by either penetrating deeper in the current market geography or entering the new geography
- Benefit from the skilled and trained workforce that helps to minimize the time required in training and development of new or inexperienced employees
- Achieve product and service diversification through either product/ service line expansion or shifting the core product/ service line of the business
- Enhance operational efficiencies and effectiveness along with cost efficiencies along the value chain through vertical integration with suppliers or distributors or both
- Bring experienced, capable and competent leadership team onboard
- Sustain the change in business environment and market conditions due to entry of a strong new player, change in regulations, etc.