Today’s market is competitive, so companies must be vigilant with their business operations, offerings, and positions to maintain steady growth and increase their bottom line. As a result, companies are developing new merger and acquisition strategies for bringing two business entities together to increase market share and access new resources.
Mergers and acquisitions (M&A) are becoming more popular, and the U.S. conducted more than half of the world’s transactions in 2021. They can be time-consuming, costly, and carry great risks, but if executed correctly, they can provide many advantages.
But why do companies merge in the first place, and what are the best strategies to find potential M&A opportunities? In this article, we’ll look closely at M&A deal origination strategies and some best practices companies can apply to their merger and acquisition strategies.
Why Do Companies Merge?
Mergers and acquisitions both work to join two companies, but they operate differently. Mergers occur when two companies combine their resources and operations, often creating a new company in the process, while an acquisition takes place when one company completely takes over another.
There are several reasons companies might pursue a merger or an acquisition:
- Increased market share: Companies can increase their presence by entering different markets and expanding their existing customer base. A 2019 study found that 34% of companies engaged in M&A cited growth as their primary goal.
- Access to new resources: A successful acquisition growth strategy can give companies access to additional resources, including technology and talent.
- Cost savings and scalability: Companies often benefit from cost savings associated with larger-scale operations and shared services.
- Improved competitive positioning: Using M&A strategies can strengthen a company’s competitive position, especially if they acquire key assets or competitors.
The benefits of M&A are clear, but the process can be complicated. That’s why having a well-defined merger and acquisition strategy is essential for success.
What Is M&A Strategy?
To make the most of M&A deals, companies need a comprehensive strategy – and it starts with understanding how M&A deals can be completed. Here are some of the most common types of mergers and acquisitions.
Joint ventures are formed when two entities join forces to pursue a common goal. This type of arrangement is often more focused on a specific business venture and can involve sharing costs, risks, profits, and resources.
Consolidation involves a larger firm absorbing smaller ones to reduce costs and increase market share.
Strategic partnerships allow two distinct entities to come together while remaining independent of each other. These partnerships are usually formed to take advantage of complementary resources and skills.
Tender offers are typically used when one company wants to acquire another publicly traded company. In this type of transaction, the acquiring company makes a public offer to buy a certain percentage of shares at an agreed-upon price.
Acquisition is the process by which one company acquires another, often in an effort to gain access to new markets or technologies. Acquisitions can be made through cash purchases, stock swap transactions, or other forms of payment.
Regardless of the method used to complete the transaction, a merger and acquisition strategy should be well-defined and thoroughly planned before a company starts looking for opportunities. That’s because knowing which deal is best for a company’s specific goals and objectives can help make the process as easy as possible.
What Do Successful Merger and Acquisition Strategies Entail?
Executing a successful M&A deal requires taking certain steps and following guidelines. When you effectively research, assess, negotiate, and manage the process, you can maximize the benefits of your merger strategy. Here are some tips for successful mergers and acquisitions.
Identify the Desired Goal
Before you purchase another company, you need to understand your why. Are you hoping to expand into a new market? Gain access to technology or talent? Increase market share and scale? A clearly defined goal will help ensure your strategy is tailored to those objectives. M&A deal origination strategies can fall apart without a well-defined purpose.
Find the Right Business to Target
With your goals and expectations in hand, it’s time to start looking for an acquisition target that meets your requirements. This process involves researching a variety of potential targets and assessing their fit. Consider financial performance, market position, industry trends, and customer base.
Thoroughly Analyze the Business
When you find a target that meets your criteria, make sure you conduct thorough due diligence. This analysis will help you understand the business’s financials and operational state and ensure everything is in order before moving forward.
How do you analyze a business? Consider its:
• Financial performance, including profitability and cash flow
• Business operations and management processes
• Legal issues, like contracts and liabilities
• Competitive environment and market trends
Conduct General Market Research
General market research is critical before committing to a deal. This step involves researching the industry and understanding the current state of competition, customer needs, and potential risks associated with entering that market.
You’ve determined that a business is a good fit for you and your goals, so it’s time to start negotiating. Set the terms of the agreement, determine the purchase price, and discuss other variables, like payment structure, liabilities, and future management plans. Make sure you have an experienced negotiator on your side, as this is one of the most critical parts of any merger and acquisition strategy.
Execute the Deal
Once negotiations are done, executing the deal can involve legal documentation, final due diligence, transferring ownership, restructuring the business, and integrating key personnel into the new company. Having a plan in place for each step will ensure that everything goes according to plan.
Grow Your Company Effectively With Successful Merger and Acquisition Strategies
A well-executed merger and acquisition strategy can be a great way to grow your company. But it’s important to plan your approach carefully to maximize the benefits. If you create and implement a successful M&A strategy, you can achieve your goals and expand your business in powerful new ways.
If you want to give your merger and acquisition strategy an extra boost, use the power of artificial intelligence (AI) and machine learning to drive your research and analysis. udu is a leader in the field, offering innovative technology that collates the market data you need to make informed decisions.
By using the latest advancements in data harvesting and AI, udu systematically scans web-connected data sources to find target companies, analyze potential investments, and develop your M&A strategy. With udu’s help, you can simplify and expedite the deal sourcing process.
Gear up for growth and explore how udu could revolutionize your next M&A venture. Schedule a demo today.