Mergers and acquisitions (M&A) strategy guide by Mordecai Gal

Mergers and acquisitions (M&A) strategy guide with AccessHeat? What is a merger between two firms? A merger is referred to as a financial operation in which two companies join each other and continue business operations as one legal entity. Generally, mergers can be divided into five different categories: Horizontal merger: Merging companies are direct competitors operating in the same market and offer similar products and/or services. A note for this mergers and acquisitions guide is that the type of merger selected by a company primarily depends on the motives and objectives of the companies participating in a deal.

What are the Different Motives for Mergers? Companies pursue mergers and acquisitions for several reasons. The most common motives for mergers are: Value creation: Two companies may undertake a merger to increase the wealth of their shareholders. Generally, the consolidation of two businesses results in synergies that increase the value of a newly created business entity. Essentially, synergy means that the value of a merged company exceeds the sum of the values of two individual companies. Note that there are two types of synergies.

Diversification: Mergers are frequently undertaken for diversification reasons. For example, a company may use a merger to diversify its business operations by entering into new markets or offering new products or services. Additionally, it is common that the managers of a company may arrange a merger deal to diversify risks relating to the company’s operations. Note that shareholders are not always content with situations when the merger deal is primarily motivated by the objective of risk diversification. In many cases, the shareholders can easily diversify their risks through investment portfolios while a merger of two companies is typically a long and risky transaction. Market-extension, product-extension, and conglomerate mergers are typically motivated by diversification objectives.

Higher Levels of Competition: The larger the company, in theory, the more competitive it becomes. Again, this is essentially one of the benefits of economies of scale: being bigger allows you to compete for more. To take an example: there are currently dozens of upstart companies entering the plant-based meat market, offering a range of vegetable-based ‘meats’.But when P&G or Nestle begin to focus on this market, many of the upstarts will fall away, unable to compete with these behemoths.

Incentives for managers: Sometimes, mergers are primarily motivated by the personal interests and goals of the top management of a company. For example, a company created as a result of a merger guarantees more power and prestige that can be viewed favorably by managers. Such a motive can also be reinforced by the managers’ ego, as well as his or her intention to build the biggest company in the industry in terms of size. Such a phenomenon can be referred to as “empire building,” which happens when the managers of a company start favoring the size of a company more than its actual performance.

High value mergers and acquisitions (M&A) usually to get the biggest headlines in newspapers, but research indicates that executives should be paying attention to all the smaller deals, too. These smaller transactions, when pursued as part of a deliberate and systematic M&A program, tend to yield strong returns over the long run with comparatively low risk. And, based on Mordecai Gal‘s research, companies’ ability to successfully manage these deals can be a central factor in their ability to withstand economic shocks. The execution of such a programmatic M&A strategy is not easy, however.

Know what strategic outcomes you ultimately want from engaging in M&A and consider the implications for both the buyer and seller. Is your goal to enter a new end market? Are you purchasing customers or contacts to geographically expand? To stay focused, always come back to how you answered the first three questions as you consider opportunities. Developing an M&A strategy requires knowing what makes your business successful now and what acquisitions can add to make the business even better in the future. It will help you clearly define the value proposition for both the buyer and the seller, as well as the value drivers that should guide acquisition decisions.

Why Mergers and Acquisitions Fail? There are many reasons so let’s discuss some of them: Misunderstanding the target company : Even due diligence doesn’t guarantee that you’ll fully understand the target company. It gives you the best opportunity to do so, but there are plenty of cases where even a lengthy period of due diligence doesn’t let you know what makes a company tick. The example of British grocery retailer Morrisson’s acquiring rival company Safeway in 2003 is testament to this. What looked on paper like a great deal for Morrisson’s – expanding their footprint all over the UK – turned into a nightmare, essentially because the two firms served completely different types of customers.

With a world-class management team and acquisition capital, AccessHeat Inc. is a uniquely positioned consolidation consortium ready to invest in your tech company. As a tech consolidation firm, we look for organizations that are working to push the limits and move into a space of exponential growth through the blending and reorganization of existing operations of the same business type. Our proven methodology focuses on producing financially robust outcomes for all parties involved in the consolidation process. Business owners who are looking for a profitable handoff and equitable transfer of ownership find peace of mind with our consultative methodology, knowing that the business they spent generations tirelessly building from the ground up is being moved to experienced and capable hands. Our strategic investment strategy makes us different than Private Equity Firms or Venture Capital Firms. We work to restructure and optimize all the components of your business that offer an opportunity for increased profitability various synergies.