The term “Mergers and Acquisitions” (M&A) is widely used and recklessly applied to situations that are “not” M&A activities. The first part of discussing M&A is to clearly agree with clients as to what is “M&A” and what is not “M&A” activity.
“Mergers and Acquisitions” (M&A) by definition most typically occur when a company decides to grow strategically by purchasing a similar company providing the same services to customers. It usually takes place because it is generally much faster to purchase another business to satisfy a growth strategy than to grow organically. Here is an example, an existing company is in the business of providing staffing for engineering companies, however, its pace of growth is limited by the amount of time it takes to bring in new clients. A short cut to dynamic fast paced growth is to acquire a similar business providing the same type of staffing services. In brief, it takes years to develop business relationships with new clients and purchasing a company to “Merge” or combine with an already successful company in that same space is a much faster business development plan.
By putting the cash or financing ability of one business into a plan of acquiring a competitor or similar business, the acquirer can grow much faster when compared to a company that grows by doing all of the heavy lifting of going out and cultivating new relationships with new customers. Another bonus to successful “M&A” plans, are the opportunities generally afforded through the merger of two separate entities.
A successful merging of two companies almost always provides an opportunity for eliminating duplicate administrative costs including staff, rent, lease and equipment expenses to name a few. This means a capable and skilled management team looks hard at staffing levels with the goal of building efficiencies in the new merged operation. A word of warning, however, when two companies merge there has to be careful consideration of the challenges of putting two corporate cultures together to optimize success. Equally important, studies have demonstrated that any significant changes must be done within 90 days of the merger of the two entities if they are ever to be achieved. A company that acquires another company, must have a plan in place well in advance of the deal to seize the opportunity to maximize the acquisition investment by making necessary changes almost immediately.
Golden Circle Advisors (GCA) can help you develop a Mergers and Acquisitions strategy that makes sense and will optimize your investment of time and money. The depth of experience, planning, operational know how and strategies will be greatly advanced through the professionals at Team GCA.