5 Reasons for Mergers and Acquisitions

There are certainly more than five reasons for mergers and acquisitions, however, we’ve picked out the five that we think have the biggest impact. Businesses can reap several benefits from absorbing another company, with a good acquisition often being able to transform a business.

Despite this, many directors still neglect to look into mergers and acquisitions. This is a real shame, as, rather than being the preserve of large conglomerates, M&As can have an incredible effect on SMEs too.

Here are the best five reasons for mergers and acquisitions.

1. Quick expansion

There’s no quicker way to expand your company than going down the M&A route. At the same time, there are few that offer expansion opportunities as sizeable as a merger or acquisition either.

By taking over a competitor’s business, you instantly extend your company’s footprint. Of course, you could always open another branch without acquiring a rival, but this would take a whole lot longer. While it may seem like the cheaper option initially, once you factor in the work involved to get a new branch up to the same level as a rival firm, it can soon become far more expensive.

A myriad of different costs and time-consuming tasks are involved in setting up a new branch. Beyond the initial work needed to source and fit out a new premises, directors will also have to consider marketing, staffing, and training costs to get the branch to the desired profitability.

When all of this is taken into account, it’s easy to see how acquiring an already-operating company can provide far quicker business expansion.

2. Increase market share

This is one of the strongest reasons for mergers and acquisitions. When completing an M&A, not only do you expand your company’s reach, but you also extinguish the threat of another business in the process.

If acquiring a bricks and mortar business in a new area, this removes the risk of setting up a new branch and finding that another firm is so well-established there that it’s hard to get a foothold. Proper due diligence can provide the data needed to ascertain how well the target business is doing before it’s absorbed. This means that you can reduce your risk significantly. If a company is already doing well, then having the extra backing of your business behind it is only likely to make it stronger still.

By absorbing another company, your business can instantly take on their client base. What’s more, by eliminating an extra option for future customers, you increase your odds of securing more business moving forwards.

3. Acquiring new capabilities

Not all mergers and acquisitions involve two companies offering the same service. While the absorption of a similar business may be more straightforward, a partnership with a company offering something different can be very beneficial.

In most cases, such M&As will find both parties aligned in some way at least. Usually one service will compliment another, such as a bakery acquiring a butchers, or a brewery merging with a distillery. These types of deals either expand the range you can offer to your clients, or allow you to simplify your supply chain.

Even those deals that see two similar businesses merge can benefit here too. It’s unusual that two separate companies, even in the same industry, will have identical processes. This means that you have the opportunity to learn new procedures that can improve your processes.

The absorbed company may be able to perform tasks that your business couldn’t. An opticians, for example, may find that the practice they take over offers them the capabilities to glaze their own spectacles with an onsite laboratory.

SaaS businesses can find that their range of client offerings can quickly expand just by virtue of such a partnership. If the newly acquired service attracts clients that may also be interested in your existing offering, then all the better.

4. Economies of scale

Whether it’s a merger or an acquisition you opt for, you’ll find that your business becomes a larger entity. This brings with it a number of benefits from day-to-day operations and beyond.

Trading as a larger company can allow directors to secure far better deals with suppliers. Keen to potentially take on a long-term agreement with a large business, suppliers are likely to provide discounts on their products. Alongside this, you’ll have the opportunity to make more bulk purchases to save money too.

Directors will find that running a larger business makes it easier to secure finance too. Lenders are reassured by the size of bigger companies and are happier to both provide finance, and better rates too. This has the potential to allow your business to pursue further growth strategies using your new-found access to better funding options.

5. Talent acquisition

The right workforce can turn a good company into a great company. If your target has employees you’d like to hire, the good news is that your business will automatically take them on board once it acquires the company in question.

For companies in industries that require skilled workers, this can be a significant boon. Certain sectors can find trained employees difficult to source, sometimes having to spend over the odds in order to secure their services. What’s more, you’ll be able to take over responsibility for their contract, which if they’ve been at the company for some time, may be far lower than you’d have to pay for a similarly qualified newcomer.

In other industries, certain workers may have built a strong reputation among their customers. Certain dentists, hairdressers, or builders, for example, may attract new work just through word-of-mouth from satisfied customers.

There may also be employees that bring with them valuable relationships. A talent agent may be useful to your business purely for the contacts they have. Strong relationships with potentially lucrative clients should not be overlooked.

Of course, alongside these five reasons for mergers and acquisitions, there are also some disadvantages to them for some businesses. Be sure to read our guide on these to check that M&A is the right route for your company to take before taking any action.

Despite these, mergers and acquisitions remain the best growth strategy for most businesses to implement. No other technique comes close to M&As for the speed and impact that it can have on a company’s growth.

Allow us to handle the complexities involved in your merger or acquisition

We specialise in helping businesses to avoid the myriad pitfalls that can turn a merger or acquisition sour. M&As take a lot of time and effort to do right, and we know that our clients don’t always have enough hours in the day to do everything they’d like. That’s why we help you through every step along the way.

As business sales specialists, we navigate the complexities of M&As for our clients to ensure that they acquire the right business for them. Call us on 0800 975 0380, or email [email protected] for a free consultation.