Understanding Mergers and Acquisitions

Many companies have completed mergers and acquisitions with incredible success whereas others have failed.  Two companies that have enjoyed incredible success with mergers and acquisitions include Apple and Google, although many others exist.  Simply put, this process involves one or more companies being taken over or absorbed by another company.  When done right, the results would be extremely rewarding but this success requires a certain strategy.

Many companies have completed mergers and acquisitions with incredible success whereas others have failed.  Two companies that have enjoyed incredible success with mergers and acquisitions include Apple and Google, although many others exist.  Simply put, this process involves one or more companies being taken over or absorbed by another company.  When done right, the results would be extremely rewarding but this success requires a certain strategy.

For starters, people need to understand that successful mergers and acquisitions take hard work, a significant amount of time and dedication, flexibility, and a little bit of luck.  Interestingly, many business owners agree that if a company ends up with one successful merger out of ten tries, they could be considered a success.  In other words, not all mergers and acquisitions work out as anticipated.

It is important to understand that often, the company being purchased typically involves an owner that has built the company with blood, sweat, and tears.  Therefore, relinquishing rights is difficult, even when the price is high.  Therefore, for mergers and acquisitions to work, negotiations play a major role.  In addition to this challenge, the company pushing for the deal to go through takes on some degree of risk.  Keep in mind that once a press release goes out about a merger and acquisition, the lead company is carefully watched by other companies within the same industry or sector.  If the deal works, great but if it fails, that company’s reputation could be marred and consumer trust damaged.

It takes a team of experts for a merger and acquisition to work.  These professionals work long, hard hours with industry experts, attorneys, public relations people, marketers, and more, all gearing toward the same goal.  For every successful deal, focus from the team was on very specific components to include:

•    Strategy – Mergers and acquisitions have to make sense.  The key is to identify strategic reasons for or against this venture.  For instance, if product lines between the two companies complement one another, if technology and/or technical skill were innovative, if there are opportunities for new customers and market growth, and if it would be possible to leverage an existing infrastructure or vertical integration, the deal would likely prove successful.

•    Motive(s) – Business owners decide to sell for a variety of reasons so the company interested in buying should never assume the reason is known.  Instead, it would be important for discussions to take place to undercover the reason a merger and acquisition were being considered.  Understanding the motive or motives for a business owner selling a company provides insight that could prove highly beneficial in closing the deal.

•    Price – Regardless of the reason a company wants to sell, there is typically some degree of remorse.  To soften the blow even if only slightly, offering a competitive price would certainly help.  The reason this is important is that the buying company never knows when information or resources from the purchased company might be needed down the road.  Maintaining a good rapport and lessening buyer remorse with a fair purchase price can go a long way in collaborated efforts in the future.

•    Proper Fit – While mergers and acquisitions that are perfect fits would be ideal, proper fit is not mandatory.  For this, things the buying company would need to consider is if the new executive team share ideologies and thereby are capable of speaking as one voice, if employees of either company are talking smack about the deal, and if the reputation of the merged companies would cause existing customers to leave or whether potential customers would be alienated.  Remember, there is no such thing as a “perfect fit” so the goal with mergers and acquisitions is to get as close to perfect possible.

•    Integration – With proper integration of the two companies, the newly formed company would achieve incredible success.  For this part of the process, it would be imperative for integration issues to be discussed among the team very early on.  Integration costs money, which would have a role in price negotiations with the buying company.  By determining and announcing the integration plan as early as possible, unnecessary tension would be avoided, which can be extremely harmful to the overall merger and acquisition.  Even if the integration means the layoff of a certain number or percentage of employees, they deserve to know what to expect so they feel respected and valued, but also have adequate time to make proper decisions for the future.

•    Ownership – The last piece of the puzzle for successful mergers and acquisitions comes after the deal has closed.  After all, at this point, the newly formed company needs to be championed so a highly qualified manager with skill and expertise is needed.  This professional would be motivated, dedicated to the success of the joined companies, and capable of working with the upmost integrity so the right things are focused on.