What Are Mergers and Acquisitions?
Businesses, like the people who run them, are living and evolving entities. They are constantly responding to the events that happen around them. In this sense, change is constant. One of the more dramatic changes that can happen to a business occurs when it combines with another business to form a new entity.
Mergers and acquisitions (M&A) refer to the process of two businesses combining into one. There are many ways in which this can happen, including so-called horizontal, vertical and conglomerate acquisitions.
The reasons for M&A are also varied. One common underlying factor in all types of M&A is the desire for one or both companies involved in the change to gain some sort of competitive advantage in their marketplace.
Another common element in M&A is the need to prepare. M&A readiness refers to how well prepared an organization is for the change. Leaders must take steps to prepare strategically, operationally, and financially for the two entities to become one.
The Benefits of Mergers and Acquisitions
M&A has many benefits for the companies involved. Generally, one or more of the businesses is looking to gain an advantage through access to markets or resources that they would not otherwise have. The specifics of those advantages will vary depending on the business.
For example, a business that manufactures a finished consumer product may want to merge with another company that supplies one of the component parts of that finished product or is involved in some other way with the supply chain, such as deliveries or shipping.
By executing the merger, the parent company will gain advantages by having greater access to the product or process and greater control over how it gets done. This leads to greater efficiencies and can reduce costs, which also leads to bigger profits.
Companies also engage in M&A to gain access to a certain talent pool in the labor market to give it specialized expertise, or to expand into other new or related markets to diversify and provide a cushion in case of declining business.