Mergers and Acquisitions (M&A) involve a rigorous process that requires a high degree of detail. For an M&A to be successful, a myriad of processes should be strategically set and executed. There are several reasons why owners of a business or top executives of an organization decide to leverage mergers and acquisitions strategies. One of the key reasons is to kill competition by buying rival companies. M&As’ also help easily boost business productivity, gain new customers, and even seamlessly penetrate into new markets.
Difference between mergers and acquisitions
Although mergers and acquisitions are often blended and increasingly used in conjunction with one another, there are certain fundamental differences between the two terms. A merger refers to two companies that consolidate into a new entity and introduces a new ownership and management structure. In contrast, in the case of an acquisition, a new company does not emerge. Rather a smaller company and its assets are acquired by a bigger player. Acquisitions generally require a large amount of cash.
Role of M&As in strategic business growth
Infiniti Research has identified some key areas where mergers and acquisitions have proven to be a useful growth strategy:
Cover gaps in service offerings
The occurrence of certain external events or the introduction of new laws and regulations causing the marketplace to change results in a gap in the firm’s offerings. This could prove to be a prime opportunity for a mergers and acquisitions strategy.
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Acquire talent and intellectual property
In most cases, companies attain market dominance through mergers and acquisitions when they are in possession of another firm’s intellectual property. Furthermore, by acquiring another company’s experienced and professional staff, it is possible for organizations to strengthen their processes and pool in new ideas to improve business.
Opportunity to leverage synergies
Strategic mergers and acquisitions are an essential part of a company’s growth strategy and often result in synergies that offer value to both the acquired and the acquiring party. Cost and revenue are two mergers and acquisition-related synergies achieved by companies. Cost synergies involve cutting costs by taking advantage of overlapping operations or resources and consolidating them into a single entity. Revenue synergies alter the competitive balance of power. It creates opportunities to change market dynamics, sell more products, or raise prices.
Develop new business models
The revenue generation and business models vary from one company to another. However, for firms planning to venture into a new business model, the best way to do it is by acquiring a firm that is using the model successfully. This helps companies avoid mistakes due to inexperience.
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