Companies looking to grow their businesses have two choices:
Grow the business organically by selling more products and services
Grow through mergers and acquisitions
Mergers and acquisitions (M&A) are a popular strategy used by companies to fuel growth, expand quickly into new markets, gain market share, new technologies and skills, influence supply chains and get a competitive edge. Although most common in fiercely competitive fields like finance, technology, retail and healthcare, M&A activity is not limited specifically to these industries. With a rapidly changing environment brought on by COVID-19 and changing consumer trends, many businesses are turning to M&A as a faster, less risky alternative to growing organically.
During times of economic strife, M&A can heat up because with less consumer spending, companies in industries like retail, can find themselves struggling to stay afloat. Some companies look to M&A to unlock higher growth potential and increase market power. Others choose M&A to unlock resources, efforts and cash flow that come with consolidation. Sometimes it's done to diversify cash flows to avoid significant losses during a slowdown in their industry. On other occasions, it's done for tax benefits.
Before considering M&A, take a look at these more common pros and cons: If you need help putting together a team of experts (business consultants, financial advisors, lawyers, etc.), Vexxit can connect you with qualified professionals to help you through this process.
Pros of M&A
Market share increases
Lower cost of operation/economies of scale
Expand into new geographic areas
Gain synergies/avoid duplication
Prevent closure of unprofitable business
Access to new markets, talent & technologies
Gain competitive edge
Influence supply chain
Cons of M&A
Increase prices for products or services
Company culture discrepancies
Inhibits economies of scale
Increase debt owed
Hostile M&A can create conflict
Involves large amounts of capital
Focus becomes the M&A, not the core business
These pros and cons of M&A demonstrate that this business transaction isn’t something to rush into or take lightly. All factors need to be thoroughly evaluated before deciding if an M&A is the right decision for your business. Get clear on the goals you have for your business, both short and long-term. From this vantage point, you can then realistically identify and prioritize your best opportunities (which may include M&A), before developing a plan to grow your business that’s in line with your goals.
While corporations and private equity firms continue to pursue M&A to fuel their growth and transform their businesses, before jumping into the M&A pool, speak with your trusted advisors who can help you analyze your strategy and keep you headed in the right direction.